Nigam Arora on Pullback Signs in Market Mania & Ways to Protect Portfolios

本站添加: 2026-06-02

[00:00:00]and the Aurora, a founder of the Aurora Report. Nigam, always nice to see you.

[00:00:03]Hope you had a nice weekend. Um you've talked about the three manias on our show before. We know that they are semis, space, and options, but I'm more interested in what you have to say about whether they can last forever. And whether we could be setting ourselves up for the probability of a correction, and I ask that because trees don't grow to the sky. And I also spoke to Dr. Aggarwal Denney about this this morning, and while he has an 82 80 250 price uh target, I should say end-year target on the S&P 500, he still believes we could potentially see a pullback over the summer. So, just walk us through uh what the risk here and the probability of a correction is in your eyes, and how much we could pull back by, do you think?

[00:00:48]>> Well, you're right.

[00:00:50]Uh trees do not go to the sky.

[00:00:53]Uh however, manias can last lot longer than anybody thinks.

[00:00:59]So, we need to be very aware of that.

[00:01:03]Now, in our analysis, probability of a correction has risen quite a bit.

[00:01:09]And the reasons are uh you know, uh the first one is the sentiment is extremely positive.

[00:01:16]And when sentiment is extremely positive, it's a warning signal. It's not a precise signal. It doesn't tell you it's going to correction is going to start today or tomorrow, but it says somewhere here.

[00:01:28]So, that's one of them.

[00:01:30]Uh the second thing is the projections for Q2 quarter uh second quarter here have just moved up earnings.

[00:01:39]And uh you know, when expectations are so high, sometimes uh those expectations are not met.

[00:01:46]And uh the other thing is, you know, the AI stocks are now half of S&P 500. And uh when concentration is so high, um you know, there's a fragility in the market.

[00:02:01]Also, we see consumer sentiment. If you watch, you know, CEO Michigan data, you know, they started keeping in, I believe, 1954 and we're hitting the lowest levels ever.

[00:02:13]Now, consumer continues to spend. So, that's good, but then if you look at the consumer savings rate, it's falling. Savings rate is going to go negative here.

[00:02:25]So, you cannot continue forever with the what's going on here. And lastly, we got midterm election ahead and historically, markets tend to dip before midterm election.

[00:02:37]So, the probability of correction is quite high, but the manias can take us a lot longer. So, then the question, Sam, is what should investors do?

[00:02:50]>> So, if that's the question, Nigam, and you just laid out the perfect setup. And last we spoke, we spoke more broadly about the difference between mania and a bubble and why the distinction was so important because sometimes in a mania, it goes higher than a rational person would believe it could. Or as Sam's analogy, can grow to the sky here.

[00:03:06]You've just highlighted a lot of reasons that likely won't happen. The fragility of the markets, we've got a midterm year. So, what are you looking at as far as timelines for when to expect this correction? And how are you positioning to get ahead of it?

[00:03:18]>> So, we use a system of dynamic hedging.

[00:03:23]And you know, we recently started dynamic hedging again. And just for a reference, just one day before Iran war on February 28th, we raised some cash. We were very hedged.

[00:03:38]And March 30th, which subsequently turned out to be the low of the cycle, but that day we did not know. We started buying. April 1st, April 2nd, we took profits on our hedges. April 7th, we said buy more. and now we're beginning to hedge. So, this is hedging a slow process based on certain proprietary signals.

[00:03:59]So, as the market goes higher, uh and depending on how our signals trigger, we're going to start hedging more and more and more.

[00:04:08]And uh so, the result is we're going to keep on holding to our, you know, long-term strategic positions. We take on some short-term positions, uh but short-term positions fairly close stops these days.

[00:04:20]And we're going to keep on increasing our hedges. So, the point is we're going to continue to participate to the upside, but if the correction occurs, uh we're not going to get uh hurt. So, that's the game and I think that's what every investor should think about.

[00:04:36]>> Given this Iran conflict has dragged out a lot longer than many had anticipated and you come into a week like today where there's extremely conflicting and confusing headlines sort of driving the prices all over the shop.

[00:04:50]With that in mind, uh combined with a more hawkish-sounding basically bench of officials over at the Fed, um and heading towards a meeting where there's an expectation that they will drop the easing bias, Nigham, has anything about your strategy changed in recent weeks given the data we've been looking at?

[00:05:10]>> Uh no, Sam, it hasn't. Uh so, so here is a, you know, kind of psychological thing and I don't know what everybody thinks about it.

[00:05:20]Uh if I were at the Fed and I was looking at the data, I would definitely be raising rates. But, I don't make those decisions, right? My job is to make uh most money for our members and investors. So, I have to look at what's Fed likely to do. So, President Trump, we know he's all for lower rates. We know all the things he has said about uh ex-chair Powell.

[00:05:45]And uh Kevin Warsh now is a very intelligent man, very smart man. But he's just been appointed by President Trump. And he's going to be a leader. Now, he can't do anything else by himself, right? He has to bring FOMC along with him. And FOMC is not going to let him uh cut rates. But I think he can prevail not to raise rates. Now, they would Okay, the speculation is they're going to start take the first step to uh raising rates by getting rid of the easing bias they've had. Fine, they can do that. So, that's a statement, but it really doesn't change the interest rates. So, I think the interest rates are not going to go up a lot from here.

[00:06:31]Maybe a little bit more, but not a lot from here. So, that's how how we kind of look at it at this point.

[00:06:36]>> And Nigam, I want to talk about this potential correction that we could see sometime between now and and October. I know in your overall report you use support zones, and you've got three detailed here. I'm just wondering if you can take our viewers through each of these zones and and how each scenario works out.

[00:06:53]>> Yeah, so one thing we do is we use zones as opposed to just one support level, which a lot of people do. Um you know, in my experience uh you know, one has to be very arrogant to say I know exactly this level the market is going to drop and then it's going to bounce or do something. I I can't tell that. I've been doing this for a long time. And the people who do that exact support levels, uh I've never seen anybody succeed at that. So, what we do is we use zones. So, our three zones are the first one starts around it's centered around about 7,200, the second one around 7,000, and we have precise levels, and the third one is about 6,800 and goes lower from there.

[00:07:39]Uh so, if the economic data, the macro data, stay strong like it is right now, we may dip to the first support zone, probably to the bottom of that support zone. And I want to point out, you know, I mean, we give the support zone way ahead of time like we're giving now.

[00:07:59]And the March correction, March 30th the low, hit exactly the low band of our support zone and then bounced. I'm not saying that it can happen this time, but that has happened a lot. Um but then if the economic data sees some mild weakness, then this is our second support zone. And if you start seeing economic data uh worsening more than mild, maybe moderately, uh then we're going to see to the third support zone.

[00:08:27]So, that's how we would look at it. And our plan is going to be, since we monitor economic data so closely, depending on what is going on, when those support zones for example, uh if we would start hitting the second support zone and uh economic data has only mildly deteriorated and we so show no signs of it deteriorating further, we would be buying.

[00:08:51]Uh on the other hand, if we hit second support support zone and we see economic data is going to deteriorate from mild to moderate, then we would we still not be buying and we'll still maintain our hedges. So, what what what's going to happen is, you know, the way our record has been, uh you know, by the time So, so here is the key. A lot of people react after the fact, right? There's some old saying, uh closing the barn door after the horses have bolted. You don't want to do that, right? Right now, the horses are in the barn, they're very content, they're feeding, they're very happy.

[00:09:28]Uh if you look at the VIX, uh hedges are cheap. We haven't seen hedges this cheap for a while. So, this is the time to start building the hedges.

[00:09:37]Uh and when the correction comes, and again some of the indicators I'm talking about, so we we use a combination of the macro data, the fundamental data, the quantitative data, the technical data. So, we don't get hung up on one form of analysis. You know, we just take the best elements of all. And so, we have these proprietary algorithms, and when we start seeing that this might be the bottom, just like we did on April 1st and April 2nd, we started moving the hedges. And then, do we add more stocks, more exposure at that point? That's a separate decision.

[00:10:08]This time we did on March 30th and April 7th. So, that's kind of how we'll proceed. And so, so this is kind of a is is not a on-off thing. It's not a market going to go up, market not going to go down, because I think that's a loser's game. Nobody can exactly time it consistently. I've been doing this now for two decades. This system of dynamic hedging really, really works.

[00:10:30]>> We really appreciate you breaking it all down for us today, Nigam, as always.

[00:10:33]Thanks so much for your time. Nigam Arora, founder of the Arora Report, joining us there.