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I’ve been thinking a lot about what would cause the most pain in this market, and my conclusion might catch you off guard.
While everyone is positioned for a pullback — and bearish sentiment is still elevated — I think the real max pain scenario is actually the opposite. I think we grind higher to new all-time highs, and that’s what catches the most people on the wrong side. Unless this bearish sentiment starts to unwind, the path of maximum frustration is simply more up, more up, more up.
Here’s why this matters and what it means for how you should be thinking about positioning right now.
Why Upside Is the Path of Maximum Pain
The setup for pain is already in place. We’re now about 13 basis points off the lows in the 10-year yield since Liberation Day, and we still haven’t broken below those levels. Yields aren’t improving, which keeps borrowing costs higher and stickier. Yet the market isn’t treating this as disruptive.
That’s the critical piece — it’s the aggressive rate of change that causes the most disruption, not the absolute level. When yields grind higher slowly, markets adapt. When they spike violently, that’s when things break.
If bearish sentiment stays stubborn and we keep pushing to new highs, you’ve got shorts getting squeezed, correction waiters missing entries and traders positioned defensively watching the market leave them behind. That’s maximum pain.
The Inflation Wrinkle That Makes This Even More Interesting
Here’s where it gets really fascinating. We’ve seen markets rally to all-time highs even when inflation wasn’t improving. Before the shutdown in 2025, higher inflation paired with record equity levels showed up repeatedly, proving that markets can thrive in environments most investors assume should weigh them down.
So what happens if we push to new all-time highs above current levels while inflation still doesn’t come down? Most would expect the market to struggle, but history suggests the opposite. Assets can act as a hedge for inflation, and when that narrative builds, the market can keep climbing even as inflation disappoints.
That creates pain across multiple positioning profiles — inflation bears, rate hawks and anyone waiting for economic weakness to provide a better entry.
I’m not saying this is what I want to happen. I’m saying this is what would hurt the most people based on current positioning and sentiment. And in markets, pain often equals price discovery.
The takeaway here isn’t to abandon caution or stop being tactical. It’s to recognize that the max pain scenario might not be the correction everyone is expecting — it might be another leg higher that forces everyone to chase.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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