This week's verdict. The regime is still Compressed Spring — unchanged. The news is inside the layers: the crowd's fear, which had been loading the spring, is starting to ease. No euphoria (which would mark a top), no macro damage (which would mark a turn).

The S&P 500 closed the week near highs again, brushing 7,480 (about +19% over twelve months). Once again, price isn't the story. The story is in Layer 2: the fear we've been flagging for weeks has begun to ease. Our sentiment gauge is coming off its cycle lows. Careful, though — this isn't optimism arriving; caution still rules — but the spring that had been pinned to the floor for weeks is starting to release.

And last week's other spring still holds: in Layer 4, the leading indicator stays above its neutral level. It's no longer turning; it's expanding.

Regime: Compressed Spring. The cycle holds, the leading indicator confirms the expansion; fear starts to ease and monetary policy is still the lid.

In 30 seconds

Regime: Compressed Spring — unchanged (it only changes if two or more layers turn).

• Layer 1 · Cycle — 🟢 out of the alert zone; no structural damage.

• Layer 2 · Crowd — 🟡 this week's change: fear starts to ease, still short of optimism.

• Layer 3 · Liquidity — 🟡 monetary policy is still the lid; no Fed meeting this week.

• Layer 4 · Real macro — 🟢 the leading indicator holds in expansion, above neutral.

  The so-what: only one layer moves — fear eases — so the regime doesn't change. The spring stays loaded, but with one contrarian support less. No euphoria (which would mark a top), no macro damage (which would mark a turn).

  This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

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  ---

  This week's composite

  (The four-layer composite and the scenario map with probabilities are in the report gallery, at the foot of this edition.)

  Regime in force: Compressed Spring. The regime only changes when two or more layers turn, and this week only one moves — sentiment. So the name doesn't change. What changes is the internal tension: one of the springs loading the move higher — the crowd's fear — is starting to ease.

  ---

  The four layers, in detail

  Layer 1 · Cycle — 🟢 Green. The Warning Signal remains clearly out of the alert zone. Worth remembering where the real danger sits: the crisis lows were −2.9 (2008) and −2.8 (2020), and we're nowhere near them. It's easing slowly from the January peak, yes, but that's losing a little momentum, not breaking. As long as this layer stays green, this is a reset with the spring loaded, not a turn lower.

  Layer 2 · Crowd — 🟡 Amber, and here's the news. For two editions we've told the "wall of worry": price at highs, a frightened crowd. Last week the first crack appeared — the professionals (very bullish advisors, active managers almost fully invested) had already gone long while retail stayed out. This week that crack widens and sentiment leaves its cycle lows. Now, careful with the word. Fear eases; it hasn't given way to optimism. We're still in caution, far from the complacency that builds tops. And the honest read is a touch uncomfortable: one of the contrarian supports loading the spring has been trimmed. Less fear, less cushion. It's not a top signal — it's the signal to start watching the other extreme.

  Layer 3 · Liquidity — 🟡 Amber, drifting lower. Here Layer 3 measures one specific thing: the monetary policy of central banks, above all the Fed. Not market conditions, but whether money blows with you or against you. And for now it blows against, gently. Warsh's Fed keeps the June bias, and there was no meeting this week, so no news. It's not restrictive yet; it's less accommodative. It's the lid that keeps the spring compressed. What we watch isn't what the Fed has already done, but what the curve starts to price: that forward-looking clock moves first.

  Layer 4 · Real macro — 🟢 Green, rising. No surprises, and that's good. The leading gauge bottomed in mid-2025 and crossed its neutral level this spring; it's still above, in expansion. The coincident still lags, a little soft. Leading ahead and coincident lagging is the signature of an early expansion, not of a cycle running out. Recessions are announced the other way round: when the leading gauge collapses with the lagging stretched. That's absent today.

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  The verdict

  Regime: Compressed Spring — with the fear spring easing. The pieces still fit. The cycle isn't broken, the leading indicator is expanding, monetary policy presses from above. The only thing moving this week is the crowd. Nothing more — but not nothing. That fear, which for weeks worked in our favour in contrarian terms, is starting to give — without yet making the jump to open optimism. The spring keeps pushing and has rope left: no euphoria (which would mark a top), no macro damage (which would mark a turn). As long as Layer 1 stays green, this is still a loaded reset.

  Scenario map (model probabilities)

  (The four-layer composite and the scenario map with probabilities are in the report gallery, at the foot of this edition.)

  This is a regime read and its probabilities, not a recommendation or a price target.

  ---

  Analogues & Bubble Watch

  The pattern "intact cycle + tightening central bank + leading gauge in expansion + fear starting to ease" has useful precedents in 1994–95 (the Fed hikes, the market digests it without a recession) and 1998 (a sharp scare inside a live cycle, distinct from 1999, already late). Illustrative analogues; every cycle is different.

  In the Bubble Watch, valuation still ticks ✓ —the CAPE at a historic extreme— and index concentration; they do not tick cycle, credit or the curve. Fuel yes, spark no. What's changed versus a month ago? With fear easing, that contrarian support weighs less. And that forces us to look at the other end of the board —complacency—, which until now we weren't even touching.

  ---

  What we're watching this week

  1. Warning Signal (Layer 1): if it speeds its fall toward zero, that would be the first real warning of a phase change (→ First Leg Down).

  2. Sentiment (Layer 2): now that fear is starting to ease, the question switches sides. Does it settle into caution, or accelerate toward the optimism and euphoria that build tops? That's what's new.

  3. Coincident (Layer 4): if it starts to rise, confirming the leading gauge, it validates the early expansion — the piece that matters most to us.

  4. The yield curve (Layer 3, forward-looking): the first hint that the Fed will loosen the lid shows up in the curve before it shows up in rates.

  We flag the day the regime changes — that's the moment of maximum value.

  ---

  The proof, in the open

  The methodology and the 33-year backtest are published and verifiable: Evidence — the proof is open →

  How is this read built, layer by layer? It's in the Edition Zero →; and last week, in The leading indicator confirms the turn →.

  And this week, our read of the BIS report on extreme valuation: AI bubble? What the BIS warns →.

  ---

  You don't need to predict the top. You need to know which phase of the cycle you're in — and to be flagged the day it changes. It works for a portfolio and it works for a business: the cycle regime is the same backdrop when you decide when to invest, expand, hire, take on inventory or finance.

  Subscribe free and get the cycle read every Sunday, before the open. Early subscribers get founder terms.

  Subscribe now

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  Reading this from an investment committee?

  FGA Research distributes, on demand and subject to prior qualification, its Institutional Macro & Markets Report: the same four-layer process, with the full proprietary series and watchlist. If you run capital, manage risk or build strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

  Request the institutional report →

  ---

  Information, not advice. Independence. Capital. Conviction.

  ---

  About the author. Francisco Salvador, founder of FGA Research. The four-layer process has served the institutional sector for years; here we open it to the non-institutional reader —investors and business owners who decide with the cycle in front of them. I comment on the cycle every week on LinkedIn → Francisco Salvador on LinkedIn

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  Notice. Informational and educational content: dissemination of proprietary macro indicators and cycle analysis, not a regulated investment service. It is not advice or a recommendation —general or personalised— nor buy/sell signals. Market data from public sources; proprietary indicators of FGA Research; past results —real or simulated— do not guarantee future results; investing carries risk, including total loss of capital.

  Independence. Capital. Conviction. · FGA Research & Advisory · Est. 2006 · 33 years of study

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• It is not "revolution or bubble": it is both. Like the railway or the internet, AI is a real transformation and, at once, an episode with a bubble profile.

• What decides the outcome is productivity, not the technology. Task-level gains are real (20–50%); the aggregate kind —the one that pays for the capex— is still below 1%.

• The main risk is not valuations: it is the financing —with debt, opaque and circular.

• The BIS warns, it does not predict. And our 4-layer model places the regime today in a compressed spring: stored tension under a lid, no damage yet.

This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

The BIS report, in brief

On 28 June the BIS —the central bank of central banks— published its Annual Economic Report; the chapter is titled "Progress and peril". In one line: AI has sustained growth, but its financing is creating risks. What the BIS states, plainly:

• The five largest hyperscalers will spend over a trillion dollars on AI capex in 2025–26, beyond their earnings and free cash flow; some are already issuing debt.

• AI-specific investment is around 1% of GDP; broad IT investment, about 5% —above the dot-com peak of 2000.

• Task-level efficiency rises 20–50%, but aggregate productivity is estimated below 1% over the long run.

• The BIS recalls the precedents —canal (1830s), railway (1840s), electrification (1920s), dot-com (90s)— and places the current multiple trajectory as the steepest of all.

The BIS’s own conclusion is nuanced: it does not declare a bubble; it warns of a risk conditional on very high expectations being met. So much for the X-ray. From here, our reading.

Our reading: why revolution and bubble coexist

The framing error is to pose it as a dilemma: either a revolution or a bubble. Economic history says it is almost always both, in this order.

Kindleberger and Minsky described the anatomy of every bubble decades ago: a displacement (a real novelty) attracts capital; capital leverages up; price decouples from fundamentals; tension builds; and, finally, the reversal. Minsky’s mechanics are exactly what the BIS describes today: agents move from funding with their own cash to funding with debt.

Carlota Pérez put it clearly: every technological revolution has an installation phase —when financial capital builds the infrastructure, with frenzy and bubbles— and a deployment phase, when the technology permeates the real economy. Between them there is usually a collapse. The bubble does not contradict the revolution: it is how capital finances, in excess, its own infrastructure.

The railway is the best mirror. The network was built and transformed the world for decades. And even so, most first-wave investors lost money, because capital was destroyed before returns matured. Being right about the technology and losing money on this vintage of capital are two different things.

The four layers: from an unanswerable question to four with answers

Here is our value. The BIS gives the global X-ray once a year. We read the cycle layer by layer, every week. And the BIS report, without meaning to, feeds our four layers.

Layer 1 · Cycle. Is the system in the alert zone or with room? The BIS describes vulnerabilities present —circular financing, off-balance-sheet risk— but not triggered. There is latent tension, not damage.

Layer 2 · Crowd. Euphoria or fear? Implied valuations are well above their historical benchmarks and risk premia are compressed. But euphoria is not uniform: you can buy the index and fear it at once. That divergence is information, not noise.

Layer 3 · Liquidity. Is money easing or tightening? It is the decisive layer. Bubbles burst when credit gets dearer, not when the technology disappoints. The BIS puts it another way: there are two independent triggers —a rate hike to contain inflation, or a disappointment in AI earnings— and both pass through the same financial channel.

Layer 4 · Macro. Is the underlying economy accelerating or softening? Here it connects with productivity: while the aggregate stays below 1%, capex rests on a promise, not a result.

The four layers turn an unanswerable question —"is it a bubble?"— into four questions with an observable answer. They do not predict the date. They locate the regime.

And it bears saying without false modesty: our model is not theory. Over the 33-year study, the four big structural declines —2000, 2008, 2020 and 2022— were characterised ahead of time, and the two corrections that led nowhere —1998 and Q4 2018— were filtered out without taking anyone out of the market falsely.

The real focus of risk: the financing

If you remember only one idea from the report, let it be this: the problem is not valuations, it is the financial plumbing.

The BIS documents it. Direct lending funds have quadrupled their lending to AI and IT in five years, to about 15% of their portfolios; the outstanding private credit to AI firms already exceeds 200 billion dollars. Loans to AI are larger than average, yet with collateral, tenor and spreads similar to the rest: either lenders underprice the risk, or the equity market overvalues the cash flows.

To this add three traits that amplify any shock. Circular financing: chip makers take equity stakes in labs that, in turn, commit to buying their compute. Off-balance-sheet risk: long-dated, poorly disclosed contracts where the same asset can be pledged several times. And the wealth effect: with households more exposed to equities than ever and the US at about 64% of the global index, a US correction does not stay at home.

The BIS sums it up in a line worth keeping: "leverage does not disappear by being out of sight."

The decisive variable and the shape of the risk

It all reduces to one measurable variable: whether, in the next 12 to 24 months, aggregate productivity and AI earnings converge toward what the market already discounts, or disappoint.

What matters is the shape of the risk. If AI delivers, the cycle continues in an orderly way. If it disappoints, the adjustment is non-linear: deleveraging feeds on itself. That is why this is a tail risk, not the central case. The upside is gradual; the downside, abrupt. That asymmetry is the message.

The bull case (because it must be made too)

It would be dishonest to close only on the dark side. Unlike the dot-com, here there are real and growing revenues; the big tech firms are profitable and still fund most of it with cash. The cost of compute falls fast, which can validate the capex with less revenue than expected. Lagging productivity is not the same as absent: general-purpose technologies show a delay —the J-curve— before the aggregate jump. And the epicentre of fragility is confined to the periphery, not the profitable core.

The revolution is real. The question is not whether AI changes the world. It is whether this particular vintage of capital recovers what was invested before credit tightens.

The panel today

Translated into our framework, and publishing only the state, not the series: the cycle, out of the alert zone; the crowd, fearful despite indices at highs; liquidity, no longer easing; and our own macro, turning up. The regime that combination describes is what we call a compressed spring: energy stored under a lid. It is not the start of a crisis. It is a system under tension, held up by liquidity.

The BIS report does not change the regime. It contextualises it: it tells us where the tension to watch sits.

Signals to watch

• Credit spreads of AI firms widening while stocks rise —the equity-debt divergence. (Layers 1 and 3.)

• Redemptions in retail private-credit funds —early signs already. (Layer 1.)

• A hyperscaler cutting its capex guidance. (Layer 4.)

• Supply bottlenecks —power, chips, grid— as an amplifier of overinvestment. (Layers 3 and 4.)

None predicts the date. All move the regime. We track them every week.

Sources

• BIS, Annual Economic Report 2026, Ch. I "Progress and peril" (28 Jun 2026): capex >1tn; task-level productivity 20–50% and aggregate <1% (Graph 10.A); historical parallels (Graph 11.C); circular financing and same asset pledged several times (Graph 13.C); ~15% of direct-lending portfolios (note 2); US ≈64% of the MSCI (Graph 12).

• BIS, Bulletin 120 "Financing the AI boom" (7 Jan 2026): AI investment ≈1% of GDP and broad IT ≈5% (Graph 4.A); private credit >200bn and ≈8% (Graph 3.A); the leverage quote.

• FGA Research, working paper (DOI 10.5281/zenodo.20709770): 33-year backtest. Results on historical data: they validate the process, not a recommendation.

Editorial content by FGA Research. It is not investment advice or a personal recommendation. It is not a recommendation on any financial instrument. References to BIS publications are provided for educational purposes; figures come from the cited sources. Past results —real or simulated— do not guarantee future results; investing carries risk, including total loss of capital. Independence. Capital. Conviction.

Reading this from an investment committee?

FGA Research distributes its institutional Macro & Markets report on demand and subject to prior qualification: the same four-layer process, with the full proprietary series and watchlist. If you allocate capital, manage risk or set strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

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Read the full BIS report →

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This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

First, in the proprietary macro: our leading indicator crosses above its neutral level and confirms the early turn that last week was only hinted at.

Second, in sentiment: our composite still reads fear, but advisors and professional managers are turning long. The "everyone is afraid" that held the spring is starting to crack on the professional side.

The four layers: the cycle holds (green); sentiment in fear, with that first crack; liquidity — the Fed, with no meeting this week, keeps its tighter bias; and the proprietary macro, with the leading indicator now above neutral.

The model keeps the regime at compressed spring, unchanged. The cycle isn't broken, the leading indicator confirms, the base still fears, and the Fed presses from above.

This describes a state of the cycle; it is not a recommendation. It helps locate the moment for decisions of portfolio and of business: when to invest, hire or finance.

Three paths, as model probabilities, not a forecast. Base: still compressed. A loosening of the regime — a conditional scenario — if fear leaves its lows behind. Or a first leg down, if the cycle turns.

Each Sunday we read which phase of the cycle the market is in — and flag the day it changes. Editorial content, not investment advice.

The proof is open: Evidence — the proof is open

Follow Francisco on LinkedIn: linkedin.com/in/francisco-salvador

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Reading this from an investment committee?

FGA Research distributes its institutional Macro & Markets report on demand and subject to prior qualification: the same four-layer process, with the full proprietary series and watchlist. If you allocate capital, manage risk or set strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

Request the institutional report →

Information, not advice. Independence. Capital. Conviction.

Not subscribed to FGA Macro yet? The weekly cycle read, in your inbox. Free.

This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

Only macro: no tips, no price targets. A reading of the cycle to decide better — for your portfolio or your business.

The four layers: — Cycle: out of alert. — Sentiment: fear. — Liquidity: the Fed stays tighter. — Proprietary macro: the leading indicator turns up.

We don't predict — we classify the regime, and flag the day it changes. Comprehension of the regime, before the consensus.

Editorial content, not investment advice. No targets, no buy/sell calls.

Reading this from an investment committee?

FGA Research distributes its institutional Macro & Markets report on demand and subject to prior qualification: the same four-layer process, with the full proprietary series and watchlist. If you allocate capital, manage risk or set strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

Request the institutional report →

Information, not advice. Independence. Capital. Conviction.

Not subscribed to FGA Macro yet? The weekly cycle read, in your inbox. Free.

The proof is open (working paper · DOI · forward test): Evidence — the proof is open

Follow Francisco on LinkedIn: linkedin.com/in/francisco-salvador

📄 The full weekly report — page by page

This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

That is why we publish FGA Macro. Not one more opinion: the proprietary series and audit methodology of FGA — the same process used to locate where we are in the cycle — explained clearly.

We cross four layers, and from their combination a single regime emerges:

— Warning Signal: is there structural damage? — Sentiment: how many are already in? — Monetary policy: is money blowing in your favour? — Proprietary macro: which phase of the cycle are we in?

This week's reading: a compressed spring. The cycle holds and the macro sees no recession; sentiment sits at an extreme. The market can keep rising, but with less margin.

In the 33-year study, the four big contractions were characterised in advance by the deterioration of these signals. Illustrative historical results.

We don't say what to buy or sell. We give the map: which phase of the cycle the market is in, before the consensus.

Editorial content, not investment advice.

Reading this from an investment committee?

FGA Research distributes its institutional Macro & Markets report on demand and subject to prior qualification: the same four-layer process, with the full proprietary series and watchlist. If you allocate capital, manage risk or set strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

Request the institutional report →

Information, not advice. Independence. Capital. Conviction.

Not subscribed to FGA Macro yet? The weekly cycle read, in your inbox. Free.

The proof is open — working paper (DOI), independent indexing and a live forward test: Evidence — the proof is open

Follow Francisco on LinkedIn: linkedin.com/in/francisco-salvador

This is how we read the cycle every week: four layers, made clear. Get it free in your inbox.

Read the working paper (DOI)

See the live forward test (OSF)

Download the dossier (PDF · ES/EN)

Across historical data, the system classified the six major episodes of the last 25 years correctly: it anticipated the four bear markets (2000, 2008, 2020, 2022), gave no false exits on the two big corrections that weren't (1998 and Q4-2018), and flagged the turns back up. Hypothetical results on partly reconstructed data; they do not guarantee future results.

The record supports robustness; the forward test puts it to the test on the only ground that allows no hindsight: the future. The model's construction is proprietary and not disclosed. A descriptive reading of the cycle, for informational and educational purposes: not investment advice or a recommendation (MiFID II/MAR), not personalized, and not about specific instruments. Past results, real or simulated, do not guarantee future results.

Read the weekly cycle in English — free.

Follow Francisco on LinkedIn: linkedin.com/in/francisco-salvador

Reading this from an investment committee?

FGA Research distributes its institutional Macro & Markets report on demand and subject to prior qualification: the same four-layer process, with the full proprietary series and watchlist. If you allocate capital, manage risk or set strategy for a committee, write to us stating your role and mandate. We confirm eligibility and send the full report within 24h.

Request the institutional report →

Information, not advice. Independence. Capital. Conviction.

Not subscribed to FGA Macro yet? The weekly cycle read, in your inbox. Free.