Market has priced in fantastic earnings, but may be extrapolating Q1 strength. Consumer is weakening; savings and income deteriorated in April. Risk of rate hikes is material; Fed may not cut. AI breadth is narrow; market vulnerable to any drawback in AI.

Tax refunds in April helped, but real income follow-through was weak. Oil prices are lower than expected given Strait of Hormuz closure. 10-year treasuries and 30-year mortgages are very high.

Markets are dissociated from economic reality, which spooks her. She wants AI exposure tied to verified monetization and free cash flow, not peak multiples for companies needing constant CapEx.

The next 5-10% depends less on AI enthusiasm and more on the real economy: inflation, oil prices, rates, and breadth.

If we get a rate hiking scenario, all bets are off for risk assets; flight to quality. Duration above 4.5% on the 10-year could become attractive. Rate hike scenario is not priced; Fed funds futures price one hike by December.