In the world of investing, some of the most powerful rallies happen when confidence is nowhere to be found. Today’s market environment is a textbook example. While indexes push higher, skepticism is everywhere. From professional fund managers to retail investors, few seem to be buying into the rally — literally and figuratively.

This is the essence of what’s known as a “squeeze phase.” It’s not driven by exuberance or strong conviction, but rather by cautious positioning that gets steadily unwound as prices rise. In this stage of the market cycle, gains aren’t propelled by overwhelming optimism, but by the discomfort of being on the sidelines while the market grinds higher.

A Wall of Worry

Despite the upward trajectory in equity markets, multiple indicators show that investors are far from bullish:

• Options markets show continued demand for downside protection. Traders are still paying premiums to hedge against a potential pullback, a clear signal of lingering fear.
• Institutional portfolios are defensively positioned. Many fund managers have underweighted risk assets and are maintaining high levels of cash or safer investments. This cautious stance reflects a broader disbelief in the sustainability of the rally.
• Retail investors haven’t chased the rally either. Positioning data shows that allocations to the market’s leadership — particularly the mega-cap tech names — remain surprisingly low relative to their dominance in index returns.

This kind of broad hesitation is exactly what fuels a squeeze. As prices climb, the pressure builds on underinvested participants to catch up. Every uptick forces skeptics to reevaluate, leading to gradual inflows that sustain the rally.

Climbing the Wall

The irony of a squeeze-driven rally is that it thrives on disbelief. The lack of widespread participation creates a situation where supply is limited and incremental buying pressure has an outsized effect on prices. With many investors sitting on the sidelines or hedging heavily, the market becomes more sensitive to any shift in sentiment.

In this phase, price action becomes its own catalyst. Strong performance from market leaders — especially the largest companies in tech and AI — draws reluctant capital off the sidelines. As money starts to trickle in, the fear of missing out (FOMO) slowly replaces the fear of losing money.

It’s important to recognize that a market climbing in the face of skepticism doesn’t automatically signal a top — nor does it guarantee smooth sailing. A squeeze phase can be prolonged, but it often ends abruptly. The key risk is that once sentiment finally flips and positioning becomes crowded, the support from underinvestment disappears.

For now, though, the market remains caught in this uncomfortable dynamic: moving higher not because it’s loved, but because it’s hated — and everyone is being forced to participate, one step at a time.