Watershed Friday: US Equities, Yields and the Road Ahead

The Macro Inflection: No Fed Put

Friday was described as a watershed day. At one point the Nasdaq was down 6 percent. US bond yields spiked, commodities across the board sold off, and the classic 60/40 portfolio construction held by pension plans and endowments took significant pain. The core issue is the absence of a Federal Reserve backstop. Non-farm payrolls on Friday beat expectations convincingly. Even President Trump tweeted his confusion at why equities were falling on good economic news. The answer is that markets are pricing the reality that strong employment data means inflation stays elevated, the Fed cannot cut, and the long discussed Fed put is simply not available.

Russell wrote a note over the weekend examining whether the Fed is effectively conducting informal yield curve control by trying to cap movements in Treasury yields. The structural problem is significant: approximately 2 trillion dollars of new US debt needs to be issued in the next year, outside of any debt refinancing. Unless yields come down, the cost of financing that debt becomes an increasingly serious drag on US GDP. Republicans need lower yields but the macro backdrop is not cooperating.

Geopolitics: Iran Ceasefire on the Brink

The fragile Iran ceasefire framework is under severe stress. This morning, Israeli forces hit targets in northern Iran. Trump had reportedly asked Netanyahu not to retaliate to earlier Iranian strikes. Netanyahu ignored the request and struck anyway. Trump has now called Netanyahu, made clear he calls the shots and has almost openly pleaded with Iran not to respond to the Israeli action. The situation is described as right on the brink.

Oil prices remain stubbornly elevated and, crucially, are now feeding directly into the downstream inflation supply chain. For the first few weeks of elevated oil prices the pass-through effect is limited. That window has now closed. Higher oil is hitting producer prices, which are flowing through into the wider consumer price basket. Resolution in Iran is described as a prerequisite for any meaningful relief in commodity prices and, by extension, any basis for the Fed to justify rate cuts on demand destruction grounds.

US Equities and the IPO Rotation Narrative

Some commentators attributed Friday’s equity selloff to liquidity draining into the SpaceX IPO, with investors front-running the deal by selling existing positions to fund the new allocation. Russell dismissed this narrative as, in his words, absolute rubbish. What markets are experiencing is a genuine risk-off move consistent with the extended overvaluation of US equities that has been flagged repeatedly in these calls. The SpaceX IPO may attract rotation within the equity universe, with traditional equities losing ground to high growth names, but it does not explain the breadth of Friday’s selloff.

This week is described as absolutely pivotal. If US equity selling accelerates and Treasury yields push higher again when the US session opens today, the pressure on risk assets will intensify significantly. If the large IPOs price well and geopolitical headlines stabilise, there is a base for a short term relief rally. The next 48 hours will determine which path the market takes.

Bitcoin: Resilient but Vulnerable

Bitcoin sold off sharply last week alongside broader risk assets, touching the low 59,000s before finding support. The key observation is that there was no meaningful follow-through below 60,000 despite the severity of the macro backdrop. Bitcoin has held up remarkably well over the weekend, overnight and into Monday morning. There is a visible buy wall and significant bids below the 60,000 level, and the price action on the way down was described as orderly rather than disruptive.

ETF outflows have been significant as institutional investors rotated out of crypto exposure alongside other risk assets. Open interest, however, has remained elevated and funding rates are normalising, suggesting the market is net short at current levels. Russell’s view is that if the market is going to make a 5 percent single day move from here, that move is more likely to be to the upside than the downside, precisely because positioning is so negatively skewed and so much bad news is already reflected in the price.

Crypto Specific Catalysts: Clarity Still in Play

The market has largely stopped talking about the CLARITY Act but Russell flagged it as still very much alive. President Trump has set July the 4th as the target deadline and, given his personal association with the crypto industry, there is a credible case that efforts are ongoing behind the scenes to get the legislation over the line. If CLARITY passes before or around the July 4th deadline, it would represent a significant positive catalyst for the entire digital asset space at a time when sentiment is deeply negative.

Options market skew remains extreme. Five delta puts are trading at implied volatility of 100 to 110, while call wing implied volatility is roughly flat to at-the-money levels. The premium of downside protection over upside speculation reflects how one-sided sentiment has become. From a contrarian standpoint, this level of put premium suggests the market has already paid heavily to hedge the bearish scenario, making an upside surprise disproportionately powerful if macro conditions shift.