“Wait and See” — The New Strategy for Being Late and Wrong
While Chair Powell continues to rehearse his greatest hit — “we’ll wait and see” — I’ve been saying since March 5th that a September rate cut was all but baked in. I didn’t need a dozen Fed speeches or a committee vote split to see where this was heading. And while I’ve been openly bearish during the tariff-driven chaos, I’ve also been clear: a massive rally into year-end was coming.
Now suddenly, markets are waking up to the idea that maybe—just maybe—consumer is tapped out, credit delinquencies matter, and Powell’s “wait and see” is really just code for “hope it doesn’t all break before we act.” Institutional cash is stacked, equity exposure is still underweight, and everyone’s pretending this positioning is tactical instead of fearful.
They’ll chase. They always do.
It’s Funny What Passes for “Surprise” These Days
For months, I’ve been told I was too bearish — simply because I pointed out that tariffs aren’t exactly rocket fuel for growth, tariffs reduce GDP, and institutions aren’t buyers when there is mass uncertainty. What I missed was that the retail buyer could create a bottom when there was nothing but a tweet. WHO WOULD HAVE THOUGHT?! But let’s not forget that since early March, I’ve been calling for a massive year-end rally and a September rate cut. Yes, March 5th. While others were panicking over delinquencies and pretending the Fed was on a coffee break, I said: watch the back half of 2025 — it’s coming.
Now the same strategists who lectured about “resilient consumers” are nervously whispering about cracks in the credit market, rate cut timing, and 4.8% institutional cash piles. Who could’ve guessed?
Apparently not them. But I did.
While Chair Powell continues to rehearse his greatest hit — “we’ll wait and see” — I’ve been saying since March 5th that a September rate cut was all but baked in. I didn’t need a dozen Fed speeches or a committee vote split to see where this was heading. And while I’ve been openly bearish during the tariff-driven chaos, I’ve also been clear: a rally into the year-end was coming. While not here yet, in the next few days, we will assess the risk, the reward, and how FOMO can launch this market quicker than the Federal Reserve saying lower rates.
Consumer slowdown meets institutional optimism
The consumer economy shows genuine stress with credit card delinquencies at 14-year highs, yet institutional investors remain aggressively positioned for growth driven by AI productivity expectations and structural market dynamics that may be masking fundamental price discovery.
Consumer weakness is real but not catastrophic, while institutional bullishness reflects sophisticated forward-looking analysis combined with structural market forces that create persistent disconnects between economic fundamentals and asset prices. The result is a bifurcated economy where consumer stress exists alongside institutional confidence in transformational growth beginning in 2026.
Consumer stress is genuine and accelerating
The evidence for consumer-led economic weakness is compelling and measurable. Credit card delinquencies reached 12.3% in Q1 2025, the highest level since Q1 2011, signaling serious financial distress among American households. This isn’t statistical noise; it represents an 8.5% increase from Q4 2024 and affects younger consumers disproportionately, with 90-day delinquencies among those under 30 reaching 10.3%.
Spending patterns confirm the stress. Retail sales declined for two consecutive months through May 2025, with the largest single-month drop since January. Consumer confidence expectations fell to 69.0, substantially below the 80 threshold that typically signals recession. The Present Situation Index dropped 6.4 points in June alone, while dining out—a key indicator of household financial health—declined 0.9%.
The bifurcation is stark: while aggregate personal consumption expenditures remain positive, the underlying dynamics show services spending increasing while goods spending contracts, suggesting consumers are prioritizing necessities over discretionary purchases. Major banks are confirming the deterioration, with JPMorgan Chase reporting credit card charge-offs at 13-year highs and increasing provisions for credit losses to $3.3 billion from $1.9 billion a year earlier.
Institutional positioning defies consumer reality
Despite mounting consumer headwinds, institutional investors remain remarkably bullish, with 67% bullish on stocks and 68% on the technology sector. This isn’t irrational exuberance—it reflects sophisticated analysis of forward-looking factors that transcend current consumer cycles.
The institutional thesis centers on AI productivity gains expected to boost GDP growth by 0.4 percentage points starting in the late 2020s, with Goldman Sachs projecting 15% increases in U.S. labor productivity from full AI adoption. Corporate investment supports this view: Big Tech companies are collectively spending approximately $200 billion in capital expenditures in 2025, primarily on AI infrastructure, representing a massive bet on transformational productivity gains.
Fund flows reveal the strategic nature of this positioning. While active equity funds experienced $36.26 billion in outflows, index equity funds saw $36.89 billion in inflows, indicating rotation from active to passive strategies while maintaining overall equity exposure. Institutions are positioning for what 71% view as a “new space race” around artificial intelligence, with 97% of senior business leaders reporting positive ROI from AI investments.
Market structure amplifies the disconnect
The persistence of this fundamental disconnect stems partly from structural changes in market architecture that impair traditional price discovery mechanisms. Algorithmic trading now accounts for 60-73% of equity trading, prioritizing technical momentum over fundamental economic signals. When algorithms respond to price patterns rather than economic data, markets can sustain disconnects from underlying fundamentals for extended periods.
More significantly, passive investing has exploded from 19% of total U.S. investment assets in 2010 to 48% by 2023. Award-winning academic research confirms that passive flows create systematic overvaluation of large-cap stocks regardless of fundamental value, while reducing the number of active investors available to correct mispricing. The “Big Three” passive asset managers—BlackRock, Vanguard, and State Street—now control over $24 trillion in combined assets, creating unprecedented concentration in decision-making.
This market structure creates “amplification loops” where price distortions persist longer than fundamental cycles would typically allow. With fewer active participants conducting price discovery and systematic strategies dominating trading, markets can disconnect from economic reality until fundamental forces become overwhelming.
The 2026 inflection point drives institutional confidence
Institutional optimism isn’t based on current economic conditions but on structural shifts expected to accelerate in 2026-2027. The timeline matters: McKinsey estimates generative AI could add $2.6-4.4 trillion annually to global GDP, with early corporate adopters already showing 25% productivity gains in specific use cases.
Policy tailwinds support this view. Major 2017 tax provisions expire at the end of 2025, creating opportunities for business-friendly policy reforms. Defense spending is expected to increase by 13% while non-defense discretionary spending faces 23% cuts, creating favorable conditions for sectors positioned around institutional investment themes.
Looking ahead through September 2025
The consumer-institutional disconnect is likely to persist through the next three months as underlying drivers remain intact. Consumer stress will probably continue given the employment momentum slowdown with job growth below trend and significant downward revisions to prior months. The Federal Reserve’s response to evolving conditions will be critical cuts that could provide consumer relief but may also validate institutional growth expectations.
Institutional positioning suggests continued optimism regardless of near-term consumer data, particularly as 73% of institutions maintain “soft landing” expectations. The structural market factors that enable this disconnect—algorithmic dominance, passive flow concentration, and reduced active price discovery—are unlikely to change in the near term.
Conclusion
The evidence reveals a genuine consumer-led economic deceleration with measurable financial stress, particularly in credit markets. However, this weakness coexists with sophisticated institutional analysis of transformational economic forces expected to drive growth independent of current consumer cycles.
The disconnect persists because market structure changes have reduced the efficiency of price discovery, allowing fundamental disconnects to persist longer than historically typical. Institutions are making a calculated bet that current consumer indicators are lagging rather than leading, with AI productivity gains and favorable policy environments creating sustainable growth foundations that will eventually lift consumer confidence and spending.
The key risk is whether consumer stress intensifies faster than institutional growth themes can materialize, potentially forcing a more dramatic market adjustment when fundamental realities reassert themselves. The 12.3% credit card delinquency rate serves as a critical early warning indicator that deserves close monitoring through the remainder of 2025.
TLDR:
The Consumer is stretched but continues to spend. Unemployment remains low. So, I expect spending to continue. Institutions currently hold 17% underweight stocks, the 5th largest in history. This can trigger the FOMO effect. Although I’m not ready to go bullish yet. I’m getting close. I guess maybe in 60 days. The big unknown right now is if retail can continue to hold this market at current levels… The rally is narrow, and August usually has a 20% decrease in volume, which can affect liquidity. We will review that in the next few days, so come back.