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The S&P 500 keeps hitting record highs while investors juggle the massive economic promise of AI and the Middle East conflict. Partial escalation in the form of reciprocal strikes between the US and Iran and Tehran's threat to abandon talks forced 9 of the index's 11 sectors to close in the red, yet information technology still pulled the benchmark higher.
US equity indices dynamics
Greed remains in charge of the equity market. Goldman Sachs notes that hedge funds are buying equities at the fastest pace in six months, impressed by the S&P 500's nine-week rally — the longest since 2023.
At the base of the move is robust demand for chipmakers. According to Goldman Sachs, the riskiest corners of the tech sector rose by 27% in May and by 57% year-to-date. Their divergence from broad indices over the past month is the largest since November 2020.
Risky mega-cap tech and sector favorites dynamics
BNP Paribas warns that the S&P 500 may be approaching a point where optimism about AI's long-term economic benefits runs into a wall of higher Treasury yields, higher inflation, and slowing GDP growth.
So far, that collision has not occurred. The US manufacturing PMI reached 54 in May — the highest in four years — and has been in expansion for five consecutive months, signaling strength in the sector and the US economy overall. The price component eased in May versus April, supporting the White House's narrative that the recent inflation spike is temporary.
If Trump's nominee Kevin Warsh convinces his FOMC colleagues of that view, the Fed could cut the funds rate this year. Rumors of easier monetary policy would be a tailwind for the broad market index.
Nothing lasts forever. The S&P 500 rally cannot run indefinitely. Sooner or later, equities will correct. The question is whether that pullback will resemble a bursting bubble or simply be another buy-the-dip opportunity for the crowd. For now, the balance favors bulls, driven by FOMO, or fear of missing out.
Technically, the daily chart shows the uptrend accelerating, visible in the widening gap between prices and dynamic support levels such as moving averages. Bears' attempt to exploit a doji and form a reversal pattern failed, which indicates buyer resilience and increases the probability of reaching the previously stated long target of 7,700 for the broad index.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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