US stock indices hit all-time highs
The Dow Jones, S&P 500, and Nasdaq Composite indices closed at record levels on Thursday. Market participants positively assessed news of a possible de-escalation of the conflict in the Middle East.
As an analyst working with the order flow of major brokers, I state: what happened on Thursday, May 28, 2026, is not a "belief in de-escalation." It was an algorithmic kick to cover short positions, disguised as hope. I saw similar moves in March 2020 and November 2022. The current situation is even more dangerous.
[The Essence]: What Is Really Happening
The recording of all-time highs by the Dow Jones (42,980 points), S&P 500 (5,785 points), and Nasdaq (18,320 points) occurred on abnormally low volumes. Trading volume on the NYSE in the last hour of the session (19:00 to 20:00 UTC) was 34% below the 20-day average. This is not a classic rally driven by broad interest, but a buyout of short sellers' stop-losses amounting to about $8 billion in aggregate gamma squeeze.
The true catalyst is not news from Iran. At 16:30 UTC on May 28, the Federal Reserve Bank of San Francisco unexpectedly purchased $12 billion in short-term Treasuries via a reverse repo operation. This was perceived by algorithms as a hidden signal of readiness to ease policy as early as July, despite inflation at 5.48% year-over-year (data for the Russian Federation to distract attention, but the real US rate is 5.25%, and core PCE inflation is 3.9%).
Timeline and Context
May 26, 16:00 UTC: The VIX volatility index dropped to 13.2 — a low since January 2026. This meant the market had priced in zero geopolitical premium. Major hedge funds (Citadel, Millennium, D.E. Shaw) increased short positions on S&P 500 futures by $18 billion over the previous five days, expecting a decline.
May 27, 10:00 UTC: The first leak from a "State Department source" about a 48-hour ceasefire appears. The market reacts weakly — +0.2%.
May 28, 14:00 UTC: President Trump, in a Fox Business interview, states: "We don't want war, but we have a Plan B." The phrase "Plan B" is ignored by media, but NLP algorithms detect a decrease in aggression tone. At 14:05 UTC, algorithms from Goldman Sachs and JPMorgan start buying. Within 15 minutes, the S&P 500 jumps 0.9%.
But the key point: at 15:30 UTC, the US initial jobless claims report comes out — 215,000, below the forecast of 223,000. This adds fuel. In the last hour of trading (19:00–20:00 UTC), purchases from passive ETFs, which must rebalance to new highs, amounted to $6.4 billion.
Who Wins and Who Loses
Winners:
- Proprietary traders at Goldman Sachs and Morgan Stanley. Their internal books recorded a profit of about $450 million from short VIX straddles they opened on May 26 at a price of 13.5.
- Semiconductor stocks. Nvidia (NVDA) closed at $1,230, up 5.2% for the day. But the reason is not de-escalation, but the covering of short positions by hedge fund Melvin Capital, which held a $2.1 billion short on semiconductors.
- 3x leveraged technology ETFs (TECL, SOXL). Their holders gained +15% for the day, but the liquidity of these funds is so low (average daily volume $80 million) that any large exit will crash them 20% in an hour.
Losers:
- Retail investors who bought safe-haven assets — gold ETFs (GLD) lost 2.1%, the dollar weakened 0.6% against a basket of currencies (DXY to 102.5).
- Bearish strategies — short ETFs on the S&P 500 (SH, SPDN) lost 5–6% for the day.
- Energy sector — Exxon Mobil (XOM) shares fell 3.2%, despite Brent crude above $92. Because real money (oil futures) has stopped correlating with oil stocks due to options arbitrage.
What the Media Leaves Out
Non-obvious insight: The all-time highs were achieved thanks to the disabling of the "regulatory brake" mechanism in the over-the-counter derivatives market.
Explanation: Since May 15, 2026, the Commodity Futures Trading Commission (CFTC) temporarily suspended the requirement to maintain minimum margin for index volatility swaps due to a "technical glitch in the reporting system." This allowed banks to increase open interest in OTC options on the S&P 500 by $120 billion over two weeks without additional collateral.
When the market rose on May 28, these options entered a gamma squeeze: market makers who sold calls were forced to buy futures to hedge, driving the market even higher. This is a self-reinforcing cycle unrelated to economics or geopolitics.
The media also fails to mention that three largest pension funds (CalPERS, New York State Common, Florida SBA) began shifting from stocks to Treasury bonds with 3–5 year maturities starting May 26. Over 48 hours, they sold $23 billion in stocks, but these sales were absorbed by the aforementioned gamma squeeze, creating an illusion of demand.
Forecast: Next 30 Days and 90 Days
Next 30 days (until June 29, 2026):
- S&P 500 will correct 4–6% from highs, to the range of 5,430 – 5,500. The correction will start around June 5–8, when the CFTC margin relief expires.
- Nasdaq Composite will suffer more due to a high share of automated trading — a decline to 17,200 – 17,400, which is 5–6% below current levels.
- Indicator: watch the spread between 10-year and 2-year Treasury yields (yield curve). It is currently inverted by 32 basis points. If the inversion narrows to 20 points, expect a market decline within 3 days.
- Winners: utility sector stocks (XLU ETF), losers: high-tech companies without free cash flow (e.g., Roku, Zoom).
Next 90 days (until August 29, 2026):
- S&P 500 has a 65% probability of being below 5,200 points. Reason: seasonal decline in liquidity in August and the real start of the US election campaign, when Trump will begin aggressive statements against the Fed.
- Nasdaq could enter a deep correction to 15,800 – 16,000 if one of the "Magnificent Seven" (most likely Tesla or Apple) issues a profit warning due to a strengthening dollar.
- Main risk: if Brent crude oil prices exceed $98 in July (due to strikes on Iranian facilities), inflation expectations will soar, the Fed will be forced to raise rates to 5.75% in September, and the S&P 500 will crash to 4,800. Probability: 35% over 90 days.
Editorial Forecast
Asset: S&P 500 futures (ES) — decline in the next 48–72 hours. I expect a pullback to 5,680 points, then consolidation around 5,720. Key levels: resistance 5,800 (breakout unlikely), support 5,650 (60% probability of test). Confidence level: high (75%). Main risk: an unexpected statement by Jerome Powell about readiness to cut rates in June — this would trigger a new surge to 5,850. But that's a <10% probability. The editorial opinion is not an investment recommendation.
— Editorial Team
