Saxo Market Call Talk of "melt-up" now competing with "bubble risk"
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Oct 9, 2025 US equities are soaring, fueled by AI stocks, but concerns about a potential bubble versus a 'melt-up' are growing. Indicators of market instability are discussed, including drastic sell-offs and retail speculation. The yen's decline, possible drivers for a reversal, and the implications of China's rare-earth export curbs are explored. The podcast also highlights the calm in junk bond yields, revealing hidden risks in private credit, while anticipating earnings season and upcoming Treasury auctions.
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Bubble Recognition Can Fuel Melt-Up
- Widespread recognition of a bubble can paradoxically extend speculative rallies by leaving many investors on the sidelines.
- John J. Hardy sees rising "melt-up" talk as a signal that the rally could intensify before it reverses.
Use Big Sell-Offs As A Warning Signal
- Watch for a single large asymmetric sell-off, especially one caused by an outsized news item, as a sign the speculative run may be ending.
- Use a >3% market plunge as a rough trigger to reassess contagion and destabilization risk.
Upside Melt-Up Can Precede Crashes
- A melt-up to the upside can also signal instability, driven by short-covering or option-related flows.
- John J. Hardy notes 2018's pre-crash melt-up as a precedent for upside destabilization.