by Jason Bodner
October 21, 2025
Did you know that when a star dies, it doesn’t always explode into a spectacular supernova?
Sometimes, the star simply dies, or disappears. Astronomers call it a “failed-supernova,” a massive star collapsing quietly into a black-hole. No fireworks, no flash… just a silent transition.
In cosmic terms that’s not destruction, it is transformation. Matter doesn’t disappear, it changes states.
That’s a helpful way to think about markets. After a strong run, we’re seeing less explosion and more recalibration. The S&P 500 tracking ETF (SPY) is off 0.25% so far in October, so investors naturally wonder if this is the start of something more serious. The answer will come in time, but data offers clues.
The Big Money Index (BMI), our barometer for institutional fund flows, is drifting lower while volatility has ticked higher. The BMI is now at its lowest level since May 15, when it began rising from April’s lows. The first rule of thumb is, when the BMI falls, outflows outweigh inflows. When the money flows are light, a pause in buying can push it down. That can happen for several reasons.
When flows are steady, a rise in outflows does the trick. When both combine – elevated selling and slowing buying – the BMI can drop quickly. We’re not dropping quickly, just drifting down:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Right now, inflows remain consistent, but outflows are pulling the index down. That’s the bad news. The good news is that this type of action doesn’t always signal a market top. It often just marks normal “backing and filling” after a long climb. We’ve seen it happen before.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Take the past five-days on a rolling basis. Since October 10th, we’ve seen net outflows for the first time since August. That sounds ominous, until you recall what happened the last time it occurred. Back in August, the dip was fleeting, followed by a surge of inflows and higher-prices.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The lesson is simple, small negative readings don’t matter as much as their intensity and duration. A brief down-tick is normal, a prolonged drain is where trouble begins. A tiny blip is happening now (above-right).
So far, there’s no sign of a prolonged drain. ETF outflows haven’t followed suit, there are no meaningful withdrawals there. Despite an elevated VIX and heavier outflows, I’m not yet worried.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What’s behind the pressure? It’s mostly in the financials. Whispers of bad loans and renewed concern over regional banks have weighed on the sector. Last week alone, we saw 62-financial outflow signals, the most since the April 2nd Liberation Day. To find a comparable stretch, you’d have to go back to March 2023, when Silicon Valley Bank collapsed and fear briefly gripped the system.
History shows that these crises usually prove more contained than feared. My hunch is this will too:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Weakness in financials was compounded by volatility in cryptocurrency and mining stocks, which dragged down broader financial names not directly related to banking. Altogether, financials accounted for roughly 35% of market outflows, followed by industrials, energy, and discretionary stocks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This, friends, is what turbulence looks like in an otherwise steady flight. As I said last week, turbulence doesn’t mean that the plane is going down, it just means we’ve hit a rough patch of air.
Sector rankings continue to send mixed signals. Utilities lead, buoyed by the narrative that AI is consuming massive electricity. If markets grow risk-averse, utilities tend to benefit as investors seek safety in their lower volatility and higher yields. Just behind utilities is technology, still drawing strong inflows, particularly into semiconductors, software, hardware, and storage – classic risk-on behavior.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Next up are industrials, materials, and healthcare, three-sectors that typically indicate expansion. The industrials point to construction and infrastructure strength, materials provide the inputs for that growth; healthcare, rebounding from earlier weakness, is near six-month highs and eying 12-month peaks.
In fact, ten of the S&Ps 11-sectors are at, or near, highs, including those bruised financials. Only staples remain near six-month lows. On the surface, that’s bullish breadth, but it also suggests a market approaching full participation, where future gains may require digestion before the next leg higher.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
From a macro perspective, the tailwinds are still strong. The Federal Reserve delivered its first rate cut of the year, with more likely to come. The next move is expected to be 25-basis points, though Fed Governor Stephen Miran has advocated for a 50-basis-point cut. Despite a modest uptick in inflation, the long-term trend remains lower, so rate cuts should keep narrowing the spread between the Fed funds rate and CPI.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Meanwhile, fiscal policy is friendly, too. The much-discussed “Big Beautiful Bill” could reduce corporate taxes and boost their cash flow. Lower borrowing costs and lighter tax burdens mean companies can widen margins without selling more goods. And they are selling more. According to FactSet, 81% of S&P 500 companies beat both earnings and sales expectations in Q2 – the strongest rate of positive surprises in years. The ten-year averages are 78% and 64%. Corporate America is still firing on all cylinders.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Then there’s the mountain of $7.5-trillion in cash sitting in money markets. As rates fall, yields will drop. It’s tempting to assume that cash will rush into equities, but reality is subtler. Yields would likely need to fall to near 1.5 % to match the S&P’s after-tax dividend yield, and that raises something crucial: total return.
The S&P 500 is up 14.8 % this year versus roughly 2.5 % in after-tax returns from money markets, so stocks delivered 5.9-times the return. Even if yields seem appealing, they can’t match rising equity gains.
We’re seeing mild outflows, not panic. Sector leadership is shifting but healthy. Financials remain under pressure, but contagion looks limited. The macro back-drop is supportive: falling rates, lower-taxes, strong earnings, and trillions waiting for a home. In short, we’ve hit turbulence, but the plane’s engines are fine.
A “failed-supernova” is just transformation of matter. Markets work the same way. Pressure and volatility often precede renewal. What looks like a fade-out may just be energy regrouping for the next expansion.
As the stoic Marcus Aurelius wrote, “Observe constantly that all things take place by change.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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Growth Mail by Gary Alexander
Book Review: Will “1929” Happen Again Soon?
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Sector Spotlight by Jason Bodner
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation and distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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