Bit of a wake-up call. Under the surface, the market has been pretty tired for 3 or 4 weeks. It could have been anything that triggered the move, but it happened to be the China tweet. About 50% of stocks are above their 50-day average, showing some lethargy. However, cyclicals are still better than defensives, credit conditions are benign, and banks are largely still involved. I expect one more move higher into year end, aiming for 7000 for year-end 2025. Into 2026, we may see a more defensive tone develop.

The market's own perception of the economy shows discretionary stocks better than staples and cyclicals better than defensives. Credit spreads are tight, suggesting no immediate worry about the economy. The big question is rates. The consensus worries about rising rates, but our story is to watch for a low level where bond yields signal economic weakening. Ten-year yields at 3.85% (385 basis points) in April was a key low. Falling below that level could indicate a weakening economy into 2026.

There's stimulus from lower yields and lower oil prices (oil around $59). It will be interesting to see if stocks respond as expected, especially consumer stocks in early 2026. Deregulation is helping banks and energy sectors, with banks being a leadership area for two years. Private capital stocks show some weakness, but money center banks may gain market share.