Complacent Markets, rising Yields
The Smart Money Tracker detected an Accumulation, i.e., a new Support/Resistance line around 7,500, well above the last Distribution Level. However, Accumulations at a new Top might not be what they resemble: yesterday’s price action was very mixed.
Although Markov Regime Analysis points to further upside, there are many contradictory signals and a major Elephant in the room:
Rising US Treasury Yields
Sector Analysis detected a pickup in sectors other than Tech, but mostly in Defensives—Healthcare, Staples, and Energy.
The Divergence in major indices making new highs and the overall Market Breadth resembles the actual US economic picture well:
How will the K-shaped economy resolve?
AI stocks were the main drivers of the latest rally and, as a considerable part of the US GDP, are certainly thriving, whereas the rest of the US economy is struggling under Inflation that is picking up and the politically induced deglobalization amid geopolitical tensions.
The U.S. economy increasingly shows a classic “K-shaped” structure, where spending growth is driven almost exclusively by higher-income households. According to recent New York Fed analysis, consumers with strong exposure to equities and financial assets continue to spend aggressively, supported by rising portfolio values and resilient labor income. Meanwhile, lower- and middle-income households face mounting pressure from inflation, elevated borrowing costs, and declining excess savings, resulting in stagnating or weakening real consumption.
This divergence helps explain why equity markets, AI-related trades, luxury spending, and selective growth sectors remain remarkably resilient despite growing macroeconomic stress beneath the surface. The current expansion appears increasingly dependent on wealth effects rather than broad-based economic strength, making markets more vulnerable to corrections in asset prices, tighter credit conditions, or a slowdown in high-income consumer activity. Defensive sector leadership and weakening breadth continue to support the view of an increasingly fragile market structure beneath the index-level strength.