What will happen next in this upside down stock market? Choose your own Wall Street adventure!

The stock market is send mixed signals right now, caught in a tangle of overlapping anxieties. Predicting your next move depends heavily on which narrative you want to believe.

You can choose Door No. 1 and subscribe to the dominant concern of the week: a number of high-profile bankruptcies in consumer-facing sectors may have revealed underlying economic weakness that threatens part of the banking sector.

A small number of regional banks reported bad loans last week. The bankruptcies of a major auto parts maker and a subprime auto lender have exposed the biggest lenders, including JPMorgan and Wall Street financial firm Jefferies, to potentially significant losses.

A number of lenders claim they have been victims of fraud. But considering these are canaries in the coal mine – and not a series of isolated incidents – it could mean that a growing number of consumers will be unable to repay their loans or could limit their spending with companies that owe a lot of money to banks. That could drive down the most vulnerable lenders if the economy really starts to deteriorate.

To paraphrase JPMorgan CEO Jamie Dimon this week, these banking problems could be cockroaches this could signal the presence of other hidden cockroaches.

Markets reached their most recent record last Wednesday. But they started to stumble after China strengthening of export controls on the key rare earth minerals whom the Trump administration has been negotiating for months to release. These rare earths are used in virtually anything that beeps, including consumer electronics and military equipment.

President Donald Trump declared last Friday that he had had enough, threatening a major new escalation of the global trade war. He said he would raise China’s tariffs by 100 percentage points and saw no need to meet Chinese leader Xi Jinping at a high-profile meeting planned in South Korea later this month.

Trump and his administration quickly backed away from those threats, confirming that a meeting with Xi was still underway. And today, Trump said he understands that significantly higher tariffs on China would not be sustainable.

But Trump has already changed his mind on tariffs, and it’s too early to expect a change. major escalation of trade tensions. If that happens, Morgan Stanley analysts predict the market could quickly fall 11% and undergo a correction.

Big Tech and the promise of AI have fueled the historic rise in stocks this year, particularly since April. But analysts have warned in recent months that it is a one-legged stool and that high valuations of AI companies cannot support the market forever.

Some see echoes of the dotcom bubble of the late 1990s, which burst in the early 2000s. Stocks have never been more expensive, judging by the ratio of share prices to actual company sales. And the eight most valuable stocks on the market – all worth more than $1 trillion – are all heavily invested in AI.

All this froth suggests to some that valuations have become out of balance with reality, and that the gains generated by AI deserve a serious reality check.

Still, bubbles are notoriously difficult to predict, and the majority view on Wall Street seems to be that the rise in AI stocks is just the beginning of a long-term trend that will propel the stock market for many years to come.

Adventure #4: Stagflation and the Fed

Investors have largely ignored the economic impact of President Donald Trump’s tariffs over the past six months as prognosticators’ worst predictions of high inflation and a slowing economy have failed to materialize.

However, inflation East risingalbeit slowly. Hiring has slowed down to a breakneck pace. Trade with the United States has slowed due to rising tariffs. And some consumers have been jolted by rising prices, with an increase in delinquencies and subprime debt for lower-income groups.

Ironically, the cracks in the economy helped push stocks higher as the labor market’s underperformance forced the wait-and-see Federal Reserve to lose patience and launch its recent rate-cutting campaign.

But the Fed may not be able to cut rates for long if the so-called stagflation – high inflation and stagnant economic growth – is becoming a real concern. At this point, the Fed may be forced to face an inflation problem again.

Geopolitical tensions could ease in Ukraine and the Middle East, and meetings are planned between Trump and his Chinese counterpart; and with Russian President Vladimir Putin. As with the recent ceasefire in Gaza, these meetings have the potential to lower the temperature, at least somewhat, in some of the world’s most worrying regions.

Meanwhile, concerns about oversupply have put pressure on the oil market, with Brent and WTI prices both at their lowest levels in nearly five months – which could ease the inflation burden for Americans, if gas prices follow falling oil prices.

And the latest concerns about regional banks, even if they bring back bad memories of a few years ago, could prove to be as contained as the regional banking crisis of 2023.

Other bad news could continue to shake up markets in the short term. But little has really changed: Stocks are down about 2% from their all-time high. If they continue to fall, this could be a good buying opportunity to get back into the market when stocks are relatively cheap.

“We would view larger pullbacks as opportunities to build on, as the bull market always deserves the benefit of the doubt,” Keith Lerner, chief market strategist at Truist, said in a note to clients Friday.

In other words: “We are keeping our powder dry and are willing to buy the dip,” said Mohit Kumar, chief economist at Jefferies.