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S&P 500 ETFs Hit Record Highs as Index Tops 6,400: What's Next?
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The S&P 500 has been on a hot ride, topping the major milestone of 6,400 for the first time ever. The three ultra-popular ETFs tracking the index — Vanguard S&P 500 ETF (VOO - Free Report) , SPDR S&P 500 ETF Trust (SPY - Free Report) , and iShares Core S&P 500 ETF (IVV - Free Report) — also hit new all-time highs.
Optimism about rate cuts and an AI frenzy are driving stocks to new highs. Traders are now pricing in a more than 90% probability of a Fed cut in September, with the odds of additional cuts in October and December also climbing. Lower interest rates reduce borrowing costs for corporations, potentially boosting capital investment, hiring and future earnings growth.
Weak Economic Data Boosts Fed Cut Bets
The latest round of weak data and declining consumer activity reinforced expectations of monetary policy easing. Inflation rose to 2.7% year over year in July while core inflation (excluding food and energy) accelerated to 3.1% from June’s 2.9%.
The economy added just 73,000 jobs in July, well below the 104,000 expected. Job gains for the prior two months were revised sharply lower by a combined 258,000, and the unemployment rate ticked up to 4.2%. Manufacturing activity contracted, and factory hiring fell to its lowest level since 2020. The sluggish performance in the services sector, coupled with a decline in new orders, further fueled concerns about a potential economic slowdown or even a recession.
Large-cap technology stocks are driving the market's latest leg of the rally, as has been the case for much of the bull market that started in October 2022. Per DataTrek Research co-founder Jessica Rabe, “Investors are back to their usual embrace of US large-cap tech stocks over large caps in general, and the move is not yet overdone.”
According to Rabe, the top 20 S&P 500 companies by market cap have surged 40.6% since the market bottom, far outpacing the index’s 27.9% gain. The remaining 480 stocks have been a relative drag. Nearly all the outperformers — including NVIDIA (NVDA - Free Report) , Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) , Amazon (AMZN), Alphabet (GOOGL, GOOG), Meta (META), Broadcom (AVGO), Tesla (TSLA), JPMorgan (JPM), Netflix (NFLX), Oracle (ORCL) and Palantir (PLTR) — have in one way or another a relation to the AI boom.
In a nutshell, tech companies that leverage disruptive innovation, such as gen AI, are powering U.S. equity returns. This is because demand for data centers, GPUs, AI-focused software and automation tools is driving investor enthusiasm across the board. Tech companies have poured billions into data centers and AI chips to support the growth of AI models.
Most notably, NVIDIA shares have gained nearly 90% from their early-April low and 22% since the start of the year, as major tech companies continue to ramp up spending on AI infrastructure that depends on the company's chips. In fact, NVDA became the first publicly traded company valued at $4 trillion last month. Microsoft joined NVIDIA in the $4 trillion club following its blowout fourth-quarter fiscal 2025 results, fueled by growth in its cloud and AI businesses. Shares of MSFT have climbed more than 110% since the debut of OpenAI’s ChatGPT in November 2022 (read: ETFs to Buy as Microsoft Nears $4T Mark Post Blowout Q4 Earnings).
Apple had its best week since July 2020, having gained 13% last week. The rally came after the tech titan announced a major expansion of its U.S. investment strategy with an additional $100???billion injection into American manufacturing over the next four years. This would follow the iPhone maker’s previously pledged $500 billion commitment to U.S. operations, which included a Texas-based AI server plant developed in partnership with local suppliers.
What Lies Ahead?
Despite strong momentum, experts and market indicators signal potential volatility ahead. Tariffs remain a lurking concern. Analysts warn that rising tariff-driven costs could dampen consumer spending and exert downward pressure on corporate margins. Consumers may begin feeling the squeeze moving into 2026.
Multiple indicators, such as high forward P/E ratios, the Buffett Indicator and sentiment metrics, point to overheated valuations. Analysts warn that the euphoria, especially in tech and meme-stock sectors, resembles patterns seen before past bubbles.
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S&P 500 ETFs Hit Record Highs as Index Tops 6,400: What's Next?
The S&P 500 has been on a hot ride, topping the major milestone of 6,400 for the first time ever. The three ultra-popular ETFs tracking the index — Vanguard S&P 500 ETF (VOO - Free Report) , SPDR S&P 500 ETF Trust (SPY - Free Report) , and iShares Core S&P 500 ETF (IVV - Free Report) — also hit new all-time highs.
Optimism about rate cuts and an AI frenzy are driving stocks to new highs. Traders are now pricing in a more than 90% probability of a Fed cut in September, with the odds of additional cuts in October and December also climbing. Lower interest rates reduce borrowing costs for corporations, potentially boosting capital investment, hiring and future earnings growth.
Weak Economic Data Boosts Fed Cut Bets
The latest round of weak data and declining consumer activity reinforced expectations of monetary policy easing. Inflation rose to 2.7% year over year in July while core inflation (excluding food and energy) accelerated to 3.1% from June’s 2.9%.
The economy added just 73,000 jobs in July, well below the 104,000 expected. Job gains for the prior two months were revised sharply lower by a combined 258,000, and the unemployment rate ticked up to 4.2%. Manufacturing activity contracted, and factory hiring fell to its lowest level since 2020. The sluggish performance in the services sector, coupled with a decline in new orders, further fueled concerns about a potential economic slowdown or even a recession.
The combination of weak data has raised the odds of interest rate cuts in September (read: 5 ETFs to Benefit if Fed Cuts Rate in September).
Big Tech Powering the Stock Market
Large-cap technology stocks are driving the market's latest leg of the rally, as has been the case for much of the bull market that started in October 2022. Per DataTrek Research co-founder Jessica Rabe, “Investors are back to their usual embrace of US large-cap tech stocks over large caps in general, and the move is not yet overdone.”
According to Rabe, the top 20 S&P 500 companies by market cap have surged 40.6% since the market bottom, far outpacing the index’s 27.9% gain. The remaining 480 stocks have been a relative drag. Nearly all the outperformers — including NVIDIA (NVDA - Free Report) , Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) , Amazon (AMZN), Alphabet (GOOGL, GOOG), Meta (META), Broadcom (AVGO), Tesla (TSLA), JPMorgan (JPM), Netflix (NFLX), Oracle (ORCL) and Palantir (PLTR) — have in one way or another a relation to the AI boom.
In a nutshell, tech companies that leverage disruptive innovation, such as gen AI, are powering U.S. equity returns. This is because demand for data centers, GPUs, AI-focused software and automation tools is driving investor enthusiasm across the board. Tech companies have poured billions into data centers and AI chips to support the growth of AI models.
Most notably, NVIDIA shares have gained nearly 90% from their early-April low and 22% since the start of the year, as major tech companies continue to ramp up spending on AI infrastructure that depends on the company's chips. In fact, NVDA became the first publicly traded company valued at $4 trillion last month. Microsoft joined NVIDIA in the $4 trillion club following its blowout fourth-quarter fiscal 2025 results, fueled by growth in its cloud and AI businesses. Shares of MSFT have climbed more than 110% since the debut of OpenAI’s ChatGPT in November 2022 (read: ETFs to Buy as Microsoft Nears $4T Mark Post Blowout Q4 Earnings).
Apple had its best week since July 2020, having gained 13% last week. The rally came after the tech titan announced a major expansion of its U.S. investment strategy with an additional $100???billion injection into American manufacturing over the next four years. This would follow the iPhone maker’s previously pledged $500 billion commitment to U.S. operations, which included a Texas-based AI server plant developed in partnership with local suppliers.
What Lies Ahead?
Despite strong momentum, experts and market indicators signal potential volatility ahead. Tariffs remain a lurking concern. Analysts warn that rising tariff-driven costs could dampen consumer spending and exert downward pressure on corporate margins. Consumers may begin feeling the squeeze moving into 2026.
Multiple indicators, such as high forward P/E ratios, the Buffett Indicator and sentiment metrics, point to overheated valuations. Analysts warn that the euphoria, especially in tech and meme-stock sectors, resembles patterns seen before past bubbles.