Marine sniper turned macro strategist says this bull market has six to 12 months left. Here's his playbook.

By Barbara Kollmeyer

Macro Ops' Alex Barrow sees trouble ahead with retail investors deeply exposed to stocks

A highly imbalanced stock market will only resolve one way, says Macro Ops founder Alex Barrow.

The demise of the four-year-old bull market in stocks may be just months away due to aggressive borrowing at a time when investors have already loaded up on stocks.

That's according to former U.S. Marine sniper and founder of macro investment research service firm Macro Ops, Alex Barrow, who said signs of stress are showing up in elevated exposure from both hedge funds and retail investors as well as the money being borrowed to invest.

"These gross measures of exposure really just keep ratcheting up," Barrow told MarketWatch in a recent interview. "This is what creates the conditions for an eventual bear market turn, because the leverage in the system gets built up. Eventually investors get over their skis, which creates this long-term cyclical force unwind that plays out in a classical bear."

The chief market strategist and his team, who provide market tools and research for institutional and retail investors, have made some prescient market calls since the firm's 2015 start. Those include flagging potential for artificial intelligence and memory stocks two years before ChatGPT's 2022 debut.

"We're always talking to these people and so we have pretty good intelligence flow in that sense, which is why in 2018, 2019, 2020 we started to turn increasingly bullish," said Barrow.

As for their current view on the trade: "We were very heavy into it until February, March of this year when it just had gone parabolic, got super crowded and that's when we started to take the majority of our profits."

Retail investors are knee-deep in stocks, says Macro Ops' Alex Barrow.

The October selloff hit just as firms were starting to recover from an earlier rout in July that crippled hedge fund Situational Awareness. Barrow said brokerage data showed hedge funds have taken an increasingly cautious tack by taking a more market-neutral stance, as their short positions, or bets against individual stocks, now offset their long positions.

That tough summer stretch likely marked the "beginning of the end" for the bull market, but the strategist warned the bear market won't come due to one event. "A typical topping process is like eight, nine months long and so we could already be starting that. I think we have a little bit more upside," but with that will come lots of "pain and volatility," he said.

Barrow sees funding woes for AI companies also contributing to a bear-market shift. He expects the Federal Reserve will have to tighten more than markets expect, due to the AI build-out and the deficit keeping inflation elevated.

Alex Barrow, founder and chief market strategist at Macro Ops

"Financial conditions are going to tighten to the point where the funding window is going to close and you don't need the AI build-out to stop, you just need it to plateau where the growth stops and then basically that drives a classical recession in the market," he said.

In preparation for a late-cycle market, Barrow said shorter-term, tactical views are the approach by Macro Ops.

For now, he expects memory stocks will resume leading the market, flagging their picks such as Micron Technology (MU), South Korean names and the Roundhill Memory ETF DRAM, which is down over 10% in October. His team started buying memory stocks on Monday, and are watching Korea's Kospi KR:180721, which is trading around a historical low of four times forward price-to-earnings.

"The bearish argument there is that in a cyclical index like Kospi, which is semiconductors basically, you always see the lowest multiples at tops. Our argument is yes, that's true, but there's more of a structural element in this AI trade that is going to extend the cyclicality of it, and so we don't think we're quite done yet."

He said they also like beaten-down construction names owing to ongoing demand from massive data-center projects, such as like CRH (CRH), and natural-gas producers via the First Trust Natural Gas ETF FCG.

"Data centers are becoming more and more reliant on actually trucking in truckloads of natural gas to drive their data centers, and this is just because our grid is so outdated it cannot handle the load, the energetic load that's going to have to come online over the next five years."

AI-related biotech and healthcare plays are also flagged by Barrow, such as Starling Oncology (STLN) and Caris Life Sciences (CAI). Longer term, he likes precious metals and miners, though believes those stocks are still moving towards lows right now.

Retail investors - the "driving force" of markets these days in his opinion - should be cautious, with the S&P 500 SPX heavily concentrated in top names and near record high numbers of firms trading at over 10 times sales.

"Now is the time to be holding higher levels of cash to be diversifying and just be patient," he said.

Barrow said in addition to some cash, investors should seek out quality stock names that have been beaten down this year, such as Berkshire Hathaway (BRK.A) (BRK.B), along with real assets, such as precious metals and miners.

He also said investors should also keep some exposure to the the AI trade, such as memory-chip companies, even as they'll be volatile.

-Barbara Kollmeyer

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11-02-26 0225ET