Good time to be cautious on stocks rather than reach for more performance, says MAI's Chris Grisanti

Market Overview & Strategy - The market experienced a 25% surge from its lows in the second quarter [2] - The market's forward earnings multiple is 24 times, exceeding the 30-year average by more than one standard deviation [2] - The strategist suggests caution due to tariff headwinds and potentially aggressive earnings estimates of 11% for this year and 12% for next year [3][2] - The third quarter is viewed as a tie-breaker to determine the future economic direction [7] - The rally since April is considered a gift, advising repositioning for a potentially more challenging second half of the year [9] Sector Analysis & Investment Opportunities - Healthcare sector is undervalued with terrific cash flows, investment-grade balance sheets, and the lowest valuations in a decade [4] - Healthcare represents the lowest percentage of the S&P in at least 25 years, presenting a value opportunity [4] - Financials and industrials are performing well, driven by economically sensitive factors [6] - The financial sector's potential to lead a broadening rebound is noted, especially considering the regulatory framework [6] Economic Factors & Fed Policy - The passage of the "big beautiful bill" is anticipated to provide a short-term positive impact on the markets [8][9] - The Fed's potential easing is linked to signs of economic deterioration, which may not necessarily benefit the market [11] - The Fed is expected to hold off on easing until economic deterioration and rising unemployment become apparent [12]