While benchmarks hover near records, a growing pile of evidence suggests the rally rests on fragile foundations. From weak macro data and faltering consumers to structural housing strains and surging national debt, investors have ample reason to step carefully.
Here’s a closer look at what’s fuelling those concerns
1. Trump’s copper move could burn corporate profits: President Donald Trump’s plan to slap a 50% tariff on copper imports is sending shockwaves through markets, and the impact could soon be felt across U.S. equities.
Copper is a critical raw material used in everything from cars and smartphones to power grids and homes, meaning higher prices could drive up costs for a wide range of companies. The sharp surge in copper futures on the Comex—jumping 17% in a single day—shows just how quickly prices are reacting.
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While U.S. copper producers may benefit in the short term, manufacturers and tech firms could see profit margins squeezed as input costs climb. This comes at a time when many businesses are already navigating tight budgets, slower demand, and global uncertainty. If these higher costs start eating into earnings, investors may grow more cautious, especially in sectors like infrastructure, electronics, auto, and construction, adding pressure to an equity market that’s already walking a fine line.
2. Growth momentum is breaking down: Cracks are also emerging in the real economy, and they’re starting at the core. GDP shrank 0.5% in Q1 2025, first blamed on a one-off import surge ahead of Trump’s tariffs. But deeper concerns lie in the significant downward revisions to consumer spending and exports. Consumer spending rose just 0.5%, the slowest pace since the steep declines of 2020, down from 1.2% in the previous estimate.
This softness is spreading. Retail sales have declined for two consecutive months, with May’s 0.9% drop marking the sharpest decline this year. April’s downward revision only deepens the concern.
Inflation, meanwhile, remains sticky, and with fresh tariffs feeding into input costs, American households are beginning to feel the squeeze. The result? A clear shift in behaviour. Consumers who once shrugged off rising prices are now pulling back, choosing caution over consumption. Confidence levels have plunged to a 12-year low, and persistent worries about soaring food and rent costs are adding to the anxiety. If this mood persists, it could mark the beginning of a broader slowdown in consumer demand.
3. U.S. bond yields are flashing caution: The sharp rise in U.S. bond yields is emerging as a significant headwind for equity markets. The 30-year Treasury yield is now flirting with the 5% mark, with technical indicators pointing to a possible breakout even higher. This move is being driven by a potent mix: Trump’s inflationary tariff push and a Federal Reserve that’s in no hurry to cut rates.
As inflation risks mount and policy uncertainty grows, investors are demanding higher returns from government debt. That’s creating a more attractive—and less volatile—alternative to stocks. In a market already showing signs of fatigue, this shift in relative value could draw capital away from equities and into bonds. With sentiment turning cautious, rising yields are tightening financial conditions, putting fresh pressure on valuations and challenging the sustainability of the current rally.
4. The economic data isn’t helping: Adding to the unease, the latest economic data is painting a worrying picture. In May 2025, personal consumption expenditures (PCE) unexpectedly declined by 0.1%—the first contraction since January—falling short of expectations for modest growth. This points to a potential cooling in consumer demand, likely weighed down by rising tariffs and growing economic uncertainty.
At the same time, personal income dropped by 0.4%, the first decline since September 2021, driven by a steep fall in government transfer payments and a 2.3% drop in proprietors’ income. Disposable personal income also slipped 0.6%, while real disposable income fell 0.7%, underscoring weakening household purchasing power.
These figures not only hint at fading consumer strength but also raise fresh concerns for corporate earnings, especially in sectors reliant on spending resilience.
5. Big investors are already reacting: One of the clearest signs that the foundation of this rally is shaky comes from watching where the smart money is headed—and more importantly, where it’s not.
Many major investors are steadily pulling money out of the market, and Berkshire Hathaway is a prime example. The firm has now recorded ten consecutive quarters of net equity sales, unloading $174 billion. In Q1 2025 alone, Warren Buffett sold another $1.5 billion worth of stocks, citing one key reason: valuations that no longer make sense.
• The Buffett Indicator (market cap-to-GDP) has soared to 207.7%, nearly 2.5 times its long-term average, signalling extreme overvaluation.
• The Shiller P/E (CAPE) Ratio is now at 37.49, more than double its 150-year mean, levels last witnessed at the height of the dot-com bubble.
Yet, retail investors are still piling in. The recent upswing in U.S. equities has been largely retail-driven. According to the Fed’s latest flow of funds data, households’ directly and indirectly held corporate equities made up a record 44.4% of their financial assets by the end of 2024, and still accounted for 43.1% at the end of Q1 2025.
That kind of exposure—at a time when valuations are stretched beyond historical norms—points to a rally driven more by speculation than by solid fundamental data. It’s not earnings growth or economic strength fuelling this surge, but rather a wave of retail enthusiasm. And as long as the underlying fundamentals remain weak, such a rally can’t be trusted to hold.
6. Technical charts echo the caution: The S&P 500 is approaching a key resistance zone near the 6,400-6,500 range, as highlighted by the upper Bollinger Band. Historically, similar tests of this band—marked in the chart—have led to short-term pullbacks.
Adding to the caution, the RSI is also showing signs of divergence, indicating waning momentum and the potential for a near-term reversal. Given these technical signals, coupled with weakening fundamental sentiment, the S&P 500 could decline toward the first support target at 5,723.70, followed by a deeper correction toward 5,391.94.
Fragile foundations in plain sight
Markets may look forward, but they can’t ignore the present forever. What lies beneath the surface is a troubling mix of slowing demand, housing strain, fiscal bloat, valuation excess, and softening investor conviction.
While the major indices still glow green, the signals underneath are blinking red. The longer those cracks are ignored, the sharper the correction could be when sentiment shifts. This isn’t just volatility. It’s a vulnerability.