Market Outlook - Macro Risk Advisors expects the S&P 500 to reach at least 7,000 by early next year, potentially rising as high as 7,500 to 7,600 [3] - The market is attempting a rotation away from danger, with mega caps making indexes appear worse while the majority of stocks try to hold steady [3][4] - The market structure has become highly concentrated in recent years [4] - The industry notes that a midterm election year typically involves a major correction or cyclical bear market in equity markets, suggesting a potential shakeout next year [11][12] Technical Analysis & Indicators - Semis are overbought, with the semi-index 35% above its 200-day moving average and over 90% of stocks above their 200-day moving average, historically indicating a potential 7-10% decline [8] - Small caps are making new highs, but the AD line is making almost new lows, which is a divergence that is very important to monitor [14] - Interest rates are key, and the 10-year yield rising above 420 basis points (420%) could lead to a mini-2018 scenario [14] Market Breadth & Participation - The industry believes that expecting the market to expand and see broad participation is unlikely in the near term, possibly not until after the next cyclical bear market [6] - Breath has been abysmal within small caps, indicating a lack of support from real economy stocks [13]

Investment Rating - The report indicates that most equities have entered or are on the cusp of a bear market, with a focus on the potential for further downside [4][5][22]. Core Insights - The report identifies three types of bear markets: Structural, Cyclical, and Event-driven, with the current market being classified as Event-driven due to tariff triggers, but with a risk of transitioning into a Cyclical bear market [4][12][21]. - Average declines in both Event-driven and Cyclical bear markets are around 30%, but they differ in duration, with Event-driven downturns being shorter and recovering faster [22][12]. - The report emphasizes the importance of valuation adjustments, extreme positioning, policy support, and signs of improving growth for a sustained market recovery [40][45][58]. Summary by Sections Bear Market Types - Structural bear markets are triggered by imbalances and bubbles, Cyclical bear markets by rising interest rates and recessions, and Event-driven bear markets by one-off shocks [13][19]. - Historical data shows that Structural bear markets have the most severe impacts, averaging declines of around 60% and taking a decade to recover [15][19]. Current Market Analysis - The current market is characterized as an Event-driven bear market, primarily influenced by tariff increases, with a noted probability of recession rising to 45% [21][22]. - The report highlights that the US equity market has seen significant de-rating, particularly in technology stocks, which has impacted overall market performance [5][22]. Recovery Conditions - For a sustained recovery, the report outlines that valuations need to adjust further, and the market must see a combination of cheap valuations, extreme negative positioning, policy intervention, and signs of improving growth [40][45][58]. - The report notes that while the US market remains expensive relative to historical standards, other markets are not particularly inexpensive either [41][44]. Market Sentiment and Positioning - The report discusses the recent significant drop in market sentiment, indicating a broad-based 'risk-off' approach among investors, which historically signals better opportunities for buying [60][62]. - The Risk Appetite Indicator has shown a considerable decline, suggesting that market positioning is adjusting to a more negative outlook [60][62].