The so-called “strategist short squeeze” is proceeding apace.

“Capitulation by stock market bears on a near wholesale basis suggests that money held on the sidelines may flow into stocks in the months ahead,” Oppenheimer’s John Stoltzfus said, lifting his year-end S&P target by 500 points to 4,900.

He’s now the proud owner of the most bullish call around, surpassing even Fundstrat’s Tom Lee, no small feat. Lee, often the subject of thinly-veiled derision in some corners, lifted his target by 75 points to 4,825 early last month. Lee was among the only strategists whose original year-end S&P target for 2023 wasn’t eclipsed by this year’s rally.

A few months ago, one reader, frustrated by the persistence of the melt-up, irritably wondered if we should all just take our cues from Lee. The answer, as it turns out, was “yes.” Yes, we should’ve. The S&P came into August looking for a sixth consecutive monthly gain.

This is a good time to remind readers that stocks generally do go up over time. This really isn’t hard. That assessment tends to grate on nerves, particularly those of people who invest other people’s money for a living. But the fact is, successful investing is a matter of reading a Jack Bogle book or two and checking your Vanguard account statements once per quarter. You don’t need an advisor. You don’t need any “strategists.” Hell, you really don’t even need a computer.

Sure, stuff goes wrong occasionally. Sometimes disastrously so. And yes, exogenous shocks obviously have the potential to dynamite the whole thing. But betting against US equities is tantamount to betting against a rigged game. The “stock market” isn’t some objective reality. It’s a thing we made up to facilitate capital formation and wealth creation. There’s a very real sense in which betting against it over long time frames is akin to suggesting that investors, market participants, Wall Street and policymakers will collectively decide to stop perpetuating a game that’s making everyone rich. I’m not sure that’s a great bet.

All of that said, you can lose money over the short-term in the US equity market (notwithstanding the Fed’s post-GFC penchant for fostering an environment where investors’ efforts to frontrun each other’s dip-buying habit eventually succeeded in eliminating most drawdowns). And now’s probably as good a time as any for a pullback. Liquidity tends to be thin in August, which is conducive to volatility. Strategists are capitulating, downside hedges are ludicrously cheap, sentiment probably overshot last month and stretched systematic positioning is one multi-session bout of range-expanding volatility away from a de-leveraging event.

The familiar figure above illustrates moribund realized vol. That’s facilitated re-leveraging by a vol control universe whose exposure is now akin to an unstable snow accumulation. If, for any reason, the daily distribution of spot outcomes (the grey-blue bars in the figure above) were to expand, that exposure could be cut. It’s an “escalator up, elevator down” dynamic.

Of course, $5.5 trillion parked in money market funds and ample room for capitulation into the rally on the flows side, argue for more gains in the absence of negative catalysts. If US wage growth and inflation continue to moderate, all the labor market needs to do is hang in there to perpetuate the Goldilocks narrative. It’ll be hard to get a material drawdown with Goldilocks data, particularly if this week’s reports from Apple and Amazon are passable.

As noted here+ on Monday, US equities are in a “bad news is good news” regime, so the risk on the macro side is pretty clearly hot data. “The dominant market dynamic has shifted from ‘growth relief’ in the spring and early summer — in the wake of the SVB shock and lingering recession fears — towards ‘inflation relief’ more recently,” Goldman’s Spencer Hill remarked. “The realization of this relief — albeit to varying degrees — has catalyzed higher valuations of US equities.”