The market just hit a record and looks like it wants to go higher. But something ugly is brewing underneath. The S&P 500 hit 6214 on July 3, yet liquidity is drying up. Volume is fading. Breadth is deteriorating. And the Fed is boxed in.
This time the cracks are real. The tariff wave is coming. CPI drops on July 11. The Fed meets July 30 and 31. Trump is back to talking about trade and tariffs. But worse than all that is the slow motion implosion in commercial real estate. Office CMBS delinquency just hit 11%. That is now above the 2009 peak.
Banks are sweating. Regional lenders are carrying exposure from deals that no longer cash flow. The broader real estate market is bleeding out. You can already feel the effects in credit spreads and refinancing gaps. That makes the second half of this year more dangerous than the chart suggests.
Here is the revised outlook reflecting tariff, CPI, CRE and credit contagion risk
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Spy likely tops between July 5 and July 10
Market is tired. Positioning is crowded. CPI may disappoint. First cracks start to form by July 11. Tariffs add to pressure by July 15. -
Spy drops to 545 to 555 range by late July
Sticky inflation, weak forward guidance and CMBS stress accelerate rotation out of risk. Mega caps finally pull back. Volatility falls. Put flow increases. -
Spy tests 530 to 540 in early August
CRE headlines and delinquency reports drive more headlines. Real estate ETFs and bank stocks begin leading the downside. Bonds bid. Rotation toward staples and cash picks up. -
Spy bounces back into Q4 targeting 580 to 595
Temporary relief as Fed remains on hold. Election cycle spending kicks in. AI infrastructure spending props up semiconductors. Soft landing narrative reemerges. -
Trump names Fed pick in early Q1 2026
Loyalist risk rattles bond market. If the pick signals less independence, market reprices yields and triggers volatility. This could be the top for that cycle. -
Credit event and bear market begin late Q4 2025 or early Q1 2026
Spy slides to 460 to 475 into mid 2026. CRE defaults rise. Regional bank funding dries up. No need for a global collapse. A domestic liquidity shock is enough.
Bullish case
• AI infrastructure and chip investment remain robust
• Fed likely to stay paused, with no hiking bias
• Election year stimulus props up select sectors
• Temporary dips remain shallow due to options positioning
Bearish case
• CMBS delinquencies at 11% and rising
• Real estate debt maturities force sales and markdowns
• Tariff uncertainty and supply chain inflation reenter the narrative
• Fed pick in 2026 may raise fear over credibility and independence
• CRE and housing pressure regional banks, triggering a credit crunch
• CPI remains sticky, limiting Fed flexibility
Sentiment has flipped. Reddit and Twitter chatter show fewer bulls. Gamma exposure is thinning. Funds are layering protection. Defensive flows are picking up speed. The spy put-call ratio hit 0.94 this week. Option flow is defensive not speculative. That is a big shift from May.
Keep an eye on key levels
• 550 is first stop
• 530 is make or break
• 460 becomes likely if liquidity dries and bank risk rises
• 625 is hard resistance for now
This market is no longer grinding on liquidity alone. Cracks are forming under the hood. Tech still leads but is stretched. Credit risk from CRE is now undeniable. Regional banks are tightening and deleveraging. There is no Fed backstop until something breaks.
Disclaimer: This is not financial advice