The S&P 500 hit its fifth all-time high of the year yesterday, with consensus building around more to come as we enter the second half of the year.

• But strategists warn this stock market rally is not risk-free.

Why it matters: Institutional investors are scarred from missing out on the April snapback, which could be priming them for bias toward optimism that misses three big potential risks.

Between the lines: Strategists are cautious about these issues.

1. Economic weakness: Inflation could worsen as tariffs hit the data, or the labor market could worsen.
2. Dollar declines: Ongoing dollar weakness could drive further inflation and fuel a rotation away from dollar-denominated assets, including stocks.
3. Valuation bubbles: With stocks trading at 22 times earnings, above historic levels, are we priced to perfection?

The intrigue: The list doesn't mention tariffs since investors don't really view tariffs as an earnings headwind anymore, as we reported.

Zoom in: The risks are slowly trickling into the economic data, and frothiness is showing up in technical market indicators.

• Continuing jobless claims continue rising, and recurring applications for unemployment benefits are at the highest level since 2021, a sign that it is taking jobless Americans longer to find a new job.
• Layoff rates remain low, but so is hiring. As of April, the hiring rate was consistent with that seen in the 2010s when the unemployment rate was over 6%.
• Consumer spending fell in May for the second time in 2025. If the shopping retreat continues, it could weigh on corporate earnings.
• The Bloomberg fear and greed index hit the highest level of greed since March of 2024 after stocks notched the record last Friday.
• Muted market participation is indicated by the ratio of the equal-weighted S&P 500 to the cap-weighted index hitting its July 2024 low.

What they're saying: Joe Brusuelas, principal and chief economist at RSM US, says equity valuations are not sustainable.

• He is concerned about investors pricing in over a 90% chance of rate cuts by September given inflation risks and currency exchange rates.
• Believing in rate cuts that soon is "a little bit like going to see that cool F1 movie…It's gonna require the suspension of disbelief to truly enjoy it," he says.

Yes, but: It has not paid off to bet against market strength this year, with the S&P 500 now up 5.4% year to date.

What we're watching: Look at market leadership for clarification on how healthy the current rally is.

• While large-cap tech drives gains thanks to its weight in the S&P 500, it is the fifth-best performing sector this year, a potential sign of broadening market strength.

The bottom line: If the volatility of the first half of the year got you seasick, diversify your portfolio.

• There's plenty of growth, especially outside of the U.S., to go around.

Courtenay Brown contributed.

If stocks are up, they tend to keep going up. But the companies that drove the market higher in the first half of 2025 are not typical of bull markets.

Why it matters: As investors confronted uncertainty, with a record number of companies mentioning the term on earnings calls, market leadership skewed more defensive than growth-oriented.

• That could indicate the current market highs are not on the strongest footing as the second half of the year kicks off.

By the numbers: The best performing sectors in the first half of the year were industrials, communication services and financials. These are not the growth names that tend to rally in frothy environments.

• Tech was the fifth-best performing sector year to date, up just over 6.5%.
• Utilities — a sector that could be seen as defensive since consumers are more likely to pay their utility bills even amid economic slowdowns — outperformed big tech.
• Investor excitement about artificial intelligence "faded during the midst of the tariff selloff in March and April," according to a note from Clark Bellin, president and chief investment officer at Bellwether Wealth.

Between the lines: Remember the Magnificent 7? The basket of tech stocks is up just 1.7% so far this year (though it's up over 35% from its April low).

• Tech has still been outperforming the broader market since the April lows, and those gains are expected to continue, according to Bellin.

Yes, but: The shift in leadership away from tech could also be viewed as a positive for investors who worry about market breadth.

• Mark Hackett, chief market strategist at Nationwide, calls the rally "broad based" in a note that described the first half of the year as "tumultuous but resilient."

What we're watching: Consumer discretionary stocks were the worst-performing sector for the first half of the year.

• If that is any indication that spending is under pressure due to economic uncertainty, it could be a warning sign for investors who are otherwise all too happy to ignore the volatility and ride the bull train to fresh highs.

While the richest Americans benefit from surging stocks, the "big, beautiful bill" slashes food and health benefits for the poorest Americans, according to health care experts and advocates for lower-income people.

Why it matters: Safety net experts say the cuts could unleash a tidal wave of pain with overcrowded emergency rooms, an increase in chronic health care issues, more medical debt, and more folks going hungry.

State of play: It's hard to know exactly where the bill will land, but it's on track to cut 20% of spending on food stamps, or SNAP, with over 2 million losing benefits, per an estimate from the Congressional Budget Office provided to Senate Democrats.

• Cuts to Medicaid could lead to nearly 12 million people losing health insurance, per the CBO. (The White House disputes that.)
• Changes to the Affordable Care Act could lead to losses for millions more, while others would face higher health care costs.

There is massive overlap here. Nearly 30 million of the 38.3 million people who received SNAP in 2022 were also enrolled in Medicaid, KFF notes.

By the numbers: The bottom 20% of earners would see a nearly 3% decline in income, or $700, under the Senate version of the bill. That's per a new analysis by the Yale Budget Lab, which accounts for the social safety net changes.

• The top 1 percent would see a nearly 2% increase, or $30,000.

💭 Emily's thought bubble: Starting in 2020, when President Trump was in office, the federal government unleashed a torrent of money in social safety net spending that continued into the Biden era, drastically reducing poverty rates in the U.S.

• That era appears to be in the rearview.