It’s been a brutal stretch. Stocks just posted their worst week since April, oil is above $90, the jobs report was a disaster, and the VIX is screaming at levels not seen since last year’s tariff crisis. But Jefferies’ equities trading desk is pounding the table: buy this mess.
“I think we rally from here,” said Michael Toomey, a managing director on Jefferies’ equities team, in a Friday note to clients. “This has been the most painful week in a long time for performance and we’re hitting a variety of stress levels that tend to help the tape bottom.” It’s a contrarian call — and he’s got the receipts to back it up.
First, crude oil’s relative strength index (RSI) has hit its second-most overbought reading ever — the only time it was higher was during the 1990 Gulf War. That’s 10,583 trading days of data. When oil gets this stretched, it tends to stall, and given its inverse correlation with equities, that should provide a tailwind. Second, near-term VIX futures have inverted over longer-dated contracts, meaning investors are paying a massive premium for short-term protection. This kind of fear spike has historically been a reliable buy signal — the last time it hit these levels was during the tariff scare of April 2025.
Third, CNN’s Fear & Greed Index is deep in “Extreme Fear” territory. Fourth, implied correlation among S&P 500 stocks is elevated, meaning investors are dumping everything indiscriminately — baby, bathwater, and the tub. Fifth, long-short momentum indexes started normalizing Friday morning after days of favoring the short side. And sixth, ETF trading volumes hit 42% of total market activity, way above the typical low-30s range. When individual stock trading dries up this much, it’s a sign of capitulation-level stress.
None of this means the risks have vanished. The Iran conflict could escalate further, the labor market is clearly softening, and the Fed is paralyzed between inflation and recession fears. But Toomey’s point isn’t that the world is fine — it’s that markets have already priced in an enormous amount of pain. When fear gets this extreme, history says the snapback is violent and fast. The traders who bought during the April 2025 tariff panic, the COVID crash, and the October 2023 yield spike were handsomely rewarded.
The question for investors isn’t whether these risks are real — they are. It’s whether the market has already overreacted to them. Jefferies thinks yes. If you’ve got cash on the sideline, this might be the kind of fear-driven dislocation that creates opportunity. Just don’t expect a smooth ride getting there.