The Illusion of Hang Time
By Morgan Christen
CFA, CFP, CDFA
Watch Michael Jordan’s iconic dunks and you would swear he’s floating. He isn’t – not for long, anyway. A standing vertical jump barely gets the average person off the ground for half a second: roughly 16 to 20 inches of lift translates to about 0.5 to 0.6 seconds in the air. Even elite athletes with a 40- to 48-inch vertical similar to Jordan’s range only stretch that out to roughly one full second before they’re back on the hardwood.
Gravity doesn’t negotiate, and it accelerates everyone at the same rate regardless of how hard they pushed off the floor. The “floating” we remember from those highlight reels is mostly an optical trick: our eyes track the slowdown at the peak of the arc and read it as suspension. No one, not even the greatest to play the game, escapes the pull for long.
Markets are having their own version of this illusion right now; and it’s appearing in places you might imagine. Start with the barometers: the three largest S&P 500 index funds – State Street’s SPY, iShares’ IVV, and Vanguard’s VOO – have ballooned to a combined $2.6 trillion in assets, while Vanguard’s fund alone just reached the $1 trillion mark.
That’s an extraordinary ascent – the kind that looks like it could hang there indefinitely. But when trillions of dollars flow into the same three vehicles, prices are increasingly set by mechanical buying – money moving in because a paycheck cleared and not because anyone re-underwrote what Apple or Nvidia is actually worth. The result shows up at the top: the 10 largest stocks in the S&P 500 now make up nearly 40% of the index, a concentration level we haven’t seen since the dot-com peak.
Now look at the other end of the market’s altitude chart. SpaceX was, to date, the largest IPO in history, blowing past Saudi Aramco’s 2019 record that had stood as the high-water mark for the better part of a decade. It’s a single jump higher than the 100 biggest IPOs have managed in the past three decades combined. Impressive, but also a reminder that record setters eventually come back down.
Stocks
Quarter two of 2026 was one of the strongest quarters for stocks in years. The push was aided by calming in Iran and AI driven earnings continuing to surprise to the upside. As the chart shows, Nasdaq led by a hefty margin, having been down the prior quarter. The S&P and Dow were no slouches, as they posted strong double-digit gains. The jump was not in a straight line, as we watched a strong push in March and May contrast with a leveling and a slowdown in June.
For the year, it has been the tale of two halves, as the first quarter saw the indices sell off as the conflict in Iran escalated and oil shipments were disrupted. The great returns in the second quarter helped Nasdaq to post 12.8%, S&P at 13.7% and Dow at 12.4% year to date.
Bonds
In bond land, Q2 closed with the whole curve shifted higher, but unevenly. The short to intermediate end moved up the most as new Fed Chair Warsh signaled a hawkish stance and several officials floated a possible rate hike later this year with 2-year yields jumping from 3.79% to about 4.12%, erasing the front-end inversion entirely. The 10-year rose more modestly, from 4.30% to 4.44%, since falling oil prices (as the Iran conflict eased) took some pressure off inflation expectations further out. The long end (20/30-year) moved the least.
Net effect: the curve went from mildly inverted at the front and moderately steep further out, to consistently upward-sloping but flatter overall a classic “hawkish repricing” pattern rather than a recession signaling one.
The question is whether markets are suffering from their own illusion of hang time. The profit margin chart suggests that meaningful margin expansion has not yet appeared outside of technology. For today’s AI valuations to hold, the benefit of AI needs to spread beyond the largest tech names and show up in the earnings power of the “other” 493 companies in the S&P 500.
That is where the timing risk sits. CFOs are asking when AI will produce measurable savings, productivity gains, or margin improvement. In technology, implementation can happen quickly. Across much of the broader economy, adoption is likely to be slower and messier.
For now, markets are still giving AI the benefit of the doubt. But patience can run out if the promised margin expansion does not begin to appear in the numbers. Or, as Cuba Gooding Jr. put it in Jerry Maguire: “Show me the money.”
Conclusion
Gravity eventually always wins the argument. Jordan came back down. Every record high in these charts will too, at some point – that’s not the debatable part. What’s debatable is timing, and right now the market is pricing near perfect timing into everything at once, three trillion-dollar index funds, a hawkish Fed, and AI valuations that assume the other 493 stocks in the S&P start pulling their weight soon. Any one of those could resolve gently. All three landing at the same time is a different story.
The stock and bond markets did their part in the second quarter, cooperating nicely with the bullish story. Equities ripped, yields repriced in an orderly way, nothing broke. But orderly is not the same as sustainable, and the one number in this letter that matters going forward isn’t a return or a yield, it’s 493. That’s the number that tells us whether the hang time is real or an optical illusion. To be fair, we have witnessed other sectors step forward, but the AI trade is still floating on a story rather than standing on cash flow. Markets can carry a good story for a while. They can’t carry it forever. Show me the money.
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