Legendary Trader Warns AI Bull Market's Real Risk Is Fed Balance Sheet Cuts, Not Rate Cuts

According to legendary trader Victor Sperandeo at the ETFGlobal ETP Forum in June, the market is focused on the wrong Federal Reserve lever. Speaking to Yahoo Finance, Sperandeo argued that while rate cuts lower the cost of capital, they do not increase liquidity—and that balance sheet reduction, not interest rates, poses the greatest risk to AI-heavy crowded trades like semiconductor and mega-cap tech stocks.

Sperandeo predicts incoming Fed Chair Kevin Warsh may pursue simultaneous rate cuts and balance sheet reduction, a combination that could trigger a market top around the Fed's June decision. He emphasized that controlling the price of money differs fundamentally from controlling money supply; the latter—what he calls "liquidity leverage"—has been systematically underestimated by investors assessing Fed policy looseness.