Title: When Things Diverge — Subtle Shift Under the Covers
Show: PauloMacro's Substack (paulomacro.substack.com)
Guest: Paulo (pseudonymous, aka Cloudbear) — author
Date: 2026-08-28
URL: https://paulomacro.substack.com/p/when-things-diverge
Length: written post — no timestamps
Note: Paid Substack post; text captured verbatim via Stephen's logged-in session. Chart-heavy note — the images (index divergence charts, Mag7 peak dates, S&P equal-weight, IG credit spreads) are not reproduced; the text carries the argument.

This is not new to long-time readers, but one set of divergences I look for to suggest that the tone for Risk overall may be changing is to look for divergences among major indices or key names. If you scroll to the bottom of this note from February (Intensely Concerned for Risk — With a Catch), you'll recall this part:

How are these divergences a healthy development?

All time high:

Nasdaq 100 — October 29th, 2025

Russell 2000 — January 22nd, 2026

S&P 500 — January 28th, 2026

Dow Industrials — February 6th, 2026

Beyond the "rotation and dispersion" market we are living in, I am seeing enough here to suggest unhealthy developments in the tape.

For starters, the indices have all scattered different highs again:

[chart]

Likewise, the key Mag7 / Hyperscaler / Chip names are all over the map…notice how Meta and MSFT peaked over a year ago, TSLA last December, NVDA and GOOG back in May… even Broadcom and Micron peaked different weeks a few months ago:

[chart]

Dispersion and rotation has created many opportunities for active managers fast enough to capitalize on narratives and flow that seem to flip on a dime these past few months, but ultimately a healthy bull market features a certain level of participation that is being too quickly embraced as bullish by the "Broadening Out" crowd here when looking simply at the S&P Equalweight Index:

[chart]

The market's leadership has clearly changed, and while this may suggest to most investors that the ongoing Rotation should just continue without negative consequences for the overall S&P, I still see a real problem with concentration as nearly half of the S&P remains AI-related with Mag7 over 30% (and chips near 20% at their highs earlier this year).

Now that IG credit spreads for what were previously considered "asset light" businesses are pressing higher in a reflexive loop with the US Treasury curve with an expected onslaught of future issuance just as managers are fully committed to equities and carrying low cash…

[chart]

…I think near-dated equity (and credit) volatility is grossly mispriced and cheap.

Stay frosty…

Paulo aka Cloudbear