Most Portfolios Are Built for the Entry, Not the Exit

In our last post, we noted that the market melt-up still had room to run. That may still be true. Momentum is powerful, positioning isn’t yet euphoric, and investors remain optimistic regarding the current earnings season and recent trade developments. Additionally, there has been a surge in the global money supply.

Global liquidity — measured by the Bloomberg GLMOSUPP G Index, a proxy for global M2 (i.e., money supply) aggregated from major economies and converted into USD — has just hit a record $113.6 trillion. That’s a staggering amount of monetary fuel sloshing around the system. And the S&P 500 has responded in lockstep — just as it has historically.

This isn’t a coincidence; it’s plumbing.

When global liquidity expands, asset prices tend to inflate. If that liquidity ever reverses — or if the flows become one-sided — the market’s “exit doors” will once again shrink. And while we remain open to near-term upside and have been trading accordingly, we are concerned about the structural fragility underpinning this rally — namely:

• Reckless fiscal spending and an economy expanding on the back of excessive debt

• Equity markets priced for perfection

• A Federal Reserve expected to lower rates despite inflation risks

Most portfolios are constructed as if liquidity is always available. The classic “60/40 and chill” approach, for example, assumes you can rebalance or de-risk smoothly at any time. But in stress scenarios, those assumptions break down. Bull markets are like smooth highways. Everyone's cruising, music's turned up, nobody’s worried.

But investing isn’t about how fast you can go — it’s about what happens when the road suddenly ends. A curve. A pile-up. A flash storm.

That’s liquidity stress.

You don’t need a portfolio that can speed up — you need one that can hit the brakes without flipping over or skidding out of control.

What often gets labeled as a “liquidity event” is usually a feedback loop of crowded positioning meeting sudden fear. Everyone tries to exit through the same door — a door that looked wide on the way in, but shrinks to a crawlspace when panic sets in.

This isn’t just about black swans. It’s about recognizing that liquidity is episodic, not continuous. And most portfolios aren’t built for that reality.

To be clear, traditional “buy and hold” isn’t dead. For long-term investors with discipline and patience, strategic asset allocation remains a powerful approach — and it should still anchor a significant portion of most portfolios.

But that doesn’t mean it’s the only approach.

At SignalEdge, we believe there’s also room — and growing need — for a more adaptive sleeve. One that navigates short-term dislocations, reacts quickly to changes in flow, sentiment, and volatility, and treats liquidity as a variable — not a given.

That’s why we focus on short-term momentum and relative value trades, often holding very few positions — and sometimes none at all. This allows us to maintain tight risk controls, stay nimble, and avoid getting trapped when the exits narrow.

Markets don’t reward static thinking anymore.

In a world of record liquidity, fiscal distortion, and rising fragility, agility isn’t just a style — it’s a necessity