The long AI-driven stock market rally that began in November 2022 is showing signs of weakness, despite some strong earnings from technology firms. Economic warnings include a troubling jobs report for July, high valuations of the S&P 500, and the Federal Reserve's reluctance to cut interest rates until September. Retail investor stock exposure is at an all-time high, raising worries about market correction risk. Although consumers are in good financial shape, persistent inflation and escalating national debt could negatively impact the market outlook.
Inflation remains almost 50% higher than the Federal Reserve's 2% target, signaling persistent economic issues despite soaring stock prices.
Retail investors' exposure to stocks is in the 96th percentile in data going back to 1997, suggesting a potential market vulnerability.
The equal-weighted S&P 500 exhibiting broader gains is a positive, but after a 30% rally off the market low, a breather may be warranted.
With national debt nearing $37 trillion and escalating inflation concerns, the outlook for the stock market suggests that the path of least resistance may be downward.
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