We’ve come a long way off the April lows, but I’m not ready to assume smooth sailing from here. The market might be melting up for now, but that doesn’t mean it’s safe.
If anything, the rally looks fragile — and the signs are piling up that we could be setting up for a sharp reversal this month.
Here are five reasons I think a July correction is still very much on the table.
Equity Valuations Are Stretched
Markets are pricing in near-perfect outcomes across the board. The Magnificent 7 still carry price-to-earnings multiples near 30, while the S&P 500 as a whole sits north of 24 — well above historical norms. With expectations already sky-high, even a small earnings miss could trigger a fast repricing.
Treasury Yields Are Rising for the Wrong Reason
The 30-year yield is hovering near 5%, not because the economy is strong but because bond traders are demanding higher compensation for growing fiscal risk. The newly signed OBBB Act — a $3.4 trillion spending package — is expected to push deficits up by another $3.3 trillion or more over the next decade. That’s putting upward pressure on yields and potentially destabilizing risk assets.
Volatility Is Quiet but Not Dead
The VIX is still technically in contango, but it’s pinned at the upper end of the 16–17 range. That’s not crisis-level volatility, but it is elevated enough to suggest underlying unease. More importantly, traders seem too comfortable. The market’s been selling premium into a melt-up, but that complacency could get punished fast if volatility breaks out.
Cost Structures Are About to Shift
Tariff uncertainty is back, and companies are already bracing for changes. The OBBB Act includes cost structure adjustments that many businesses haven’t priced in yet — especially those exposed to global trade. Any earnings guide-downs tied to margin compression could spark a sentiment reversal.
We Haven’t De-Risked
Despite all the talk of caution, markets haven’t truly priced in macro risk. We’re still sitting at all-time highs with very little hedging, and earnings season is about to begin. If just a few bellwethers disappoint or the inflation data next week comes in hot, the reaction could be swift and violent.
Bottom line…
I’m not calling for a crash — but I am calling for protection. The setup is there. If you’re riding this rally without a hedge, just understand what’s at stake. One sharp move could erase weeks of slow grind gains. I’d rather be cautious now than sorry later.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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