Summary

• Fiscal and credit impulses are drying up, signaling a hard landing and severe liquidity drought for risk assets in 2026-2027.
• April’s private sector deficit of -$111B and record federal outlays set up a near-term equity pullback, with tax refunds and Treasury payments offering temporary support.
• Fed policy remains on hold at 3.50%-3.75% as inflation cools, but labor softening and housing contraction point toward future rate cuts once geopolitical shocks subside.
• Global monetary indicators warn the S&P 500 is overvalued versus fundamentals, with a major correction likely before a potential recovery into 2028-2029.

Introduction

This report evaluates risk‑asset performance through the combined lenses of sectoral balances, the real‑estate cycle, and fiscal‑flow dynamics. With inflation continuing to ease into May and unemployment edging higher, the interplay between a more reactive Federal Reserve and a renewed phase of fiscal

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