The S&P 500 reached a new record high Tuesday, touching 7,844.52 and surpassing its August 13 peak of 7,830. The benchmark closed above 7,800 for the first time. The move comes despite months of oil shocks, higher borrowing costs and the prospect of more Federal Reserve rate hikes.
A day that saw the 10-year Treasury yield climb past 5.3%, a level unmatched since 2002, was followed by the rally. Mid-September brought the first rise in the Fed’s benchmark rate in over three years, and the central bank signaled that further increases were expected.
Oil’s Wild Year
For the first time since 2022, oil topped $100 a barrel in early March, driven by the Iran conflict and the disruption it caused to energy supplies moving through the Strait of Hormuz. The price then dropped below $70, before springing back above $100 in early September. The swings have given traders a window into how sharply oil prices can move, and the market has kept climbing despite them.
The Magnificent 7 and the AI Boom
A narrow lead from a handful of stocks tied to the AI hype has driven the record run. Nvidia, Alphabet, Amazon, Apple, Meta, Microsoft and Tesla together account for more than 34% of the S&P 500’s market cap.
The senior vice president of retail and alternative investments at Cboe Global Markets, Kinahan, said the weight of the components matters for the broader index.
He came out with the words, “When you consider that much girth among a small handful of stocks, it’s apparent how much these stocks’ daily movements dictate the direction of the S&P 500 and the Nasdaq, both of which are in record territory again today,”.
Why Profits Outrun Oil
Some people are puzzled by the stock market’s strength, despite oil prices spiking and borrowing costs going up.
Potomac Fund Management’s economic strategist Snyder presented a direct account during a CNBC chat.
“Oil and bond yields can be correlated, but so is the stock market and profits. And if the profits are there, which they have been, the stock market is going to be resilient, even if the economy is a bit more mixed,” he said.
A period of oil shocks, rising borrowing costs, and the likely start of a Federal Reserve rate hiking cycle has paved the way for the record rally.
SpaceX’s Record IPO
In June, investor enthusiasm for high-risk technology plays came into focus as SpaceX raised $75 billion in what was the largest IPO ever, and began trading on June 12. The debut marked yet another milestone in a trend where investors kept backing growth companies even as energy prices and borrowing costs rose.
The Skeptics
Snyder warned that the market’s breadth may weaken, and he offered two explanations for why that weakness could persist.
- If inflation shows no signs of easing.
- If there’s no clear signal the Federal Reserve is achieving its mandate.
On Wednesday, the central bank is set to issue the minutes from its September meeting.
The market “can look relatively calm, but there are still things going on underneath the surface that may not be so calm,” Snyder said.
Kinahan’s Confidence
Kinahan made the case that the U.S. stock market is still the best place to keep money.
“When traders take a breather from the noise surrounding them — much of it negative in recent months — and look closer at what’s happening in the markets, it becomes clear the U.S. stock market is the best place to park their money compared with other locations. It’s hard to argue against the mostly positive risk-reward ratio we’ve seen over multiple decades,” he said.
The S&P 500 reached a new record high Tuesday. The 10-year Treasury yield surpassed 5.3% on Monday, reaching levels not seen since 2002.
The market’s current record rally follows a long stretch of oil shocks, rising borrowing costs and the possible launch of a Federal Reserve rate hiking cycle. The public has largely ignored those pressures so far, but Snyder’s warning about weakening breadth suggests the calm may not hold.
Source material: “Chart: A look at the S&P 500's remarkable and defiant trip to a new record,” CNBC.
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