Markets can remain irrational longer than you can remain solvent. The S&P 500 rally from the April lows—adding $8.6 trillion in market cap—often appeared irrational. Investors ignored the Federal Reserve's downscaling of its expected monetary expansion from four to just two rate cuts, the cooling U.S. economy, the rise in 10-year Treasury yields to 5%, and even the U.S. credit rating downgrade. The crowd kept buying stocks, but the broad equity index rally shows growing signs of fatigue.

The popular "sell America" strategy that followed Donald Trump's sweeping tariffs has been financially painful for institutional bears on the S&P 500. New slogans are emerging to replace it. Morgan Stanley is promoting "buy everything American—except the dollar" and has raised its 12-month target for the S&P 500 to 6,500. This estimate roughly aligns with the Wall Street consensus.

S&P 500 Performance and Forecasts for the Broad Equity Index

All new things are just old things that have been forgotten. The issues that plagued the U.S. stock market after February are starting to resurface. Notably, there's been a flight from Magnificent Seven stocks and a capital shift from the U.S. to Europe.

Goldman Sachs reports that hedge funds have reduced their holdings in U.S. tech stocks and increased exposure to their Chinese counterparts. The competition in this sector is intense, with P/E ratios for Alibaba and PDD at 10–13. For comparison, only Alphabet (Google) trades with a forward P/E below 20 within the Magnificent Seven. Why buy overpriced U.S. tech stocks when comparably strong alternatives abroad are much cheaper?

JP Morgan and Citigroup state that European stock indexes, which are off to their best start versus U.S. peers in 20 years, will continue to widen the gap. Their fundamental valuations are also significantly lower than their U.S. equivalents. For years, capital flowed one way—from Europe to the U.S. Now it's time for a reversal.

P/E Ratio Dynamics of European vs. U.S. Stock Indices

Pressure on the S&P 500 could increase soon if Congress fails to pass Donald Trump's "big and beautiful" fiscal stimulus package. Internal divisions within the Republican Party cast doubt on whether he can secure the necessary votes. This has the White House nervous—after all, if the package fails, voters might recall the shortcomings of Trump's tariff policies. Hence the new mantra: "Do or die," a call for GOP unity.

The formation of an inside bar on the S&P 500 daily chart presents an opportunity to place pending orders: a buy order at 5950 and a sell order at 5910.