Most Investors Don't Know the Indices Changed the Rules. Todd Stankiewicz Explains the Risk.
By Todd Stankiewicz | CIO, SYKON Capital | Portfolio Manager, Free Markets ETF (FMKT)
Get a timely perspective on what’s really driving today’s market moves and why it matters for investors right now. This conversation with host Christopher Vecchio (CFA of tastylive) and guest Todd Stankiewicz (CIO of SYKON Capital) takes a closer look at shifting dynamics beneath the surface, raising important questions about where opportunities and risks may be emerging next.
About Author
Todd Stankiewicz | Chief Investment Officer, SYKON Capital
Todd Stankiewicz is the Chief Investment Officer of SYKON Capital, a fee-based registered investment advisor with offices in Westchester County, NY and Jupiter, FL. He is a recurring guest on Fox Business and the Schwab Network, where he discusses markets, portfolio strategy, and investor behavior. Todd is also the portfolio manager of the Free Markets ETF (FMKT).
Learn more at www.sykoncapital.com
Transcript:
Markets have staged an enormous recovery in recent weeks. AI remains the dominant leadership theme. Valuations are starting to get elevated and traders are debating whether or not this rally marks the beginning of another leg higher or it's just the late stage. Final push to the top side today on trading trends, we're joined by Todd Stankiewicz, the CIO of SYKON Capital and co-portfolio manager of the Free Markets ETF FMKT.
Todd has been closely following market structure, leadership, quality, inflation risks and how investors should be thinking about positioning in a market that is increasingly shaped by AI, passive flows and now policy shifts every single day. Todd, it's good to have you here. Thank you for having me.
So this market has moved so quickly since the end of March, especially in tech and growth. When you look at the current environment, do you see a healthy bull market broadening out or do you see signs of overheating beneath the surface? It's a very difficult question to answer because I think you could have answered we've seen signs of overheating for the past few years, but yet this market continues to keep going.
Like you're talking about, AI is a primary driver that's going with that. There's two primary markets I'm taking a look at right now, The S&P 500 and the NASDAQ, which are what a lot of people follow at the moment. And I think it really depends on what timeframe we look at those in. When we start to look at the daily charts.
The daily charts definitely look overheated. We've extended outside some of the Bollinger bands and we're moved to RSI levels at, you know, are above 70. And in the case of the NASDAQ, we've actually moved to an RSI above 80, which is very rare. We don't see that very often on a daily and the weekly, you know, breach 70.
Again, these are very rare overbought conditions. And usually what we see is we see a little bit of a reset going forward when we hit those levels. So it doesn't mean that we're going to have some major sell off or we're going to be entering a new bear market or anything like that.
But it does mean that if you're looking to put capital to work or you're looking to buy, it probably means that there's some pause here. Right. It probably means in the short term you get some breathing room here, so to speak. So the chart that you share with us shows this move near the upper part of the Bollinger bands.
And that usually screams something like overbought. But the weekly chart still kind of looks constructive to me. Almost like early 2024 breakout. So how are you separating this potential short term exhaustion from a longer term durable move higher? Yeah, I think this is a big question and it's trading versus investing, right?
If you're trading, you're trying to catch shorter term trends and swings and things of that nature. If you're investing, you raise a great point. Sometimes these overbought conditions or these big moves are constructive for the market. And that, 2024 breakout, I think is really what we're seeing right now.
You saw a little pullback to the 40 RSI level on the weekly chart. You're breaking above the Bollinger bands and, and you're not quite on the weekly S&P. You're not quite that overbought yet. You're just sitting below 70. And that means we can continue the run going forward for a number of different weeks.
And that 2024 rally was a rather epic rally. One of the broader themes that you flagged recently is the, index construction itself, right? The S&P 500 is moving towards relaxing profitability and seasoning requirements. The NASDAQ is shortening its IPO seasoning period.
We have of course, the SpaceX IPO, which is drawing a lot of attention, we'll call it recently. Are the indexes starting to chase performance this late in the cycle? Yeah, it's interesting, Chris, because it's probably more reason why I think we're in the late part of the cycle than the charts themselves. Right.
And economically we're still seeing profits, and companies are reporting record profits this earnings season. But ultimately with the S&P 500 looking to change the inclusion, criteria. Right. They're looking to move from a one year seasoning to a six year to a six month seasoning after IPO.
And they're looking to remove the profitability requirements, for companies. Traditionally, S&P 500 has been blue chip stocks, right? It's America's profitability. That's what people have looked at it as. And if they change these requirements, I feel that they may be chasing performance.
They're looking to include these big IPOs that are going public and they want to be able to include them and they're not profitable. They're arguing that this is where we're going, right? This is part of the future. So if we're going to capture the American economy, we have to capture these companies that are going public, even if they're not profitable.
But I think the challenge for investors is they don't always know what they own. There's not a lot of news about this, there's not a lot of media. And you think that you own the S&P 500 and then you own an AI tracking ETF portfolio over here, you own the NASDAQ 100 composite over here. You know, are you really getting, are you really getting any diversification?
You're just getting a whole ton of overlap. And I think that's the biggest thing is that the set it and forget it crowd needs to start revisiting their portfolios and needs to pay attention to what's actually happening with these rule changes. But I agree with you, Chris. I think that that's the biggest concern is are they chasing performance?
Are they going after these companies because they know that people are going to go into other indexes or other indices if they don't own the SpaceX or the Anthropics or whoever may be next that goes public? There's a certain feeling that I have where when you see this type of activity, you're looking at maybe a set of circumstances that could lead to more instability in the future during market corrections.
Yeah, that's the alarming read through on what you're telling me. Yeah, no, I giggle sometimes about, market corrections because the reality is that we see these 20, 30% drops and they're happening faster and faster, faster than we've ever seen.
I mean, 2020 was one of the fastest bear markets in history, if you want to call it that. Right. 2022, we had a massive 20% plus drop depending on what index you were looking at. And then we just come off of these bottoms. Even in 2025, right.
I think we had a 20 plus percent decline, 22% decline in the S&P. And then we just ripped off of the bottom. And ultimately what's happening is that I think people are becoming numb to risk or ignoring it. And it's almost like, okay, they're going to look at this as a positive and they're going to say, okay, great, chase it, because we want that kind of exposure in our index.
The reality is that these companies may not allow the index to perform in the same fashion that it did previously. Because if you had all profitable companies that were in there, these companies that are highly levered, unprofitable, do they have a different risk profile?
Do they have a different exposure if things start to unwind, can these companies recover the same way that you had previously index previously recovered that was purely profitable? I think so yes. The answer is it could add to volatility. I think it also adds to the unpredictableness.
And can you rely on this index the same way you could in the past? So I want to think about this in the portfolio construction terms here. Day traders, folks who are focused on shorter term time frames, they may not necessarily be thinking about portfolio construction for optimizing cash flows in the future but they do think about things in terms of beta weighted deltas.
And should I add another tranche of this leg here or will it put too many eggs in the basket short term? So in a market driven by concentrated leadership, elevated valuations and this rapid AI movement that's sweeping through the market, how do you as a portfolio manager think about this risk management and opportunity in terms of selection?
Are you doing idiosyncratic buying for individual names or are you finding that as this move has occurred it's worth taking more big picture thematic ideas? Yeah, I think there's different ways to look at that and there's one to look at it from an advisor portfolio manager for individual clients and then one to look at it from portfolio manager for the free markets ETF FMKT I think ultimately when we're looking at it, valuations are extremely stretched.
The Shiller CAPE is pushing around 40 depending on exactly what point in time you're looking at it that has historically been associated with peaks in the market. But it's very difficult to time based on valuation. But the reality is when you look at it, we're starting to see these bear markets occur in the undercurrents.
If we look at what happened to software stocks, they got absolutely decimated, down 30, 40, 50%. We saw it with the asset managers and some of the especially the alternative asset managers as there was news about all the private credit concerns, they got really creamed, and they sold off a tremendous amount.
We're seeing it with aerospace and defense stocks right now and we're seeing them move significantly lower. And we have parts of this market that are ripping the new highs, extreme evaluations and then we have other parts of the market that are selling off rather significantly.
significantly could potentially not go down as much as a broader market or may actually, go up because the selling's been done in that space.
A lot of people who wanted to get out have gotten out. And we believe that the holders there are the ones who believe in the company for the long term. So we're trying to think about it from more a value perspective right now, which is a little counterintuitive to me, being a traditional momentum investor. Markets always look easiest near the highs and hardest near the lows.
But Todd, what separates the winners from the losers is having the discipline when you're in both of those places. And I think that you've given us a pretty good roadmap for to think about the market, over the next few weeks. He's been Todd Stankiewicz of SYKON Capital CIO of SYKON Capital and he's the co-portfolio manager of the free Markets ETF.
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