S&P 500 analysis: AI frenzy galore ahead of Fed, tech earnings, and Trump-Xi talks

• S&P 500 analysis: Risk appetite remains strong as traders eye central bank decisions, tech earnings, and the Trump-Xi meeting
• Nvidia smashes through $5 trillion valuation, driving fresh record highs in US equities
• AI optimism and rate-cut hopes fuel the rally, but narrow breadth raises sustainability questions

 

The three major US indices were holding into unchartered territories at the time of writing, with the benchmark stock indices in places like Japan, the UK and Spain also hitting record highs today. Sentiment is as bullish as it can be heading into what could be one of the most consequential two-day periods for markets this quarter. Traders were juggling multiple catalysts ranging from central bank rate decisions, a barrage of heavyweight tech earnings, and a highly anticipated meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. Trump’s upbeat tone ahead of the summit gave markets an extra push. He hinted at easing tariffs tied to the fentanyl dispute and said he plans to discuss Nvidia’s Blackwell AI chips with Xi. His remarks sent Nvidia soaring to a $5 trillion company and propelled the S&P 500, Nasdaq 100 and Dow Jones to new record levels. In a market already high on AI-fuelled enthusiasm, that was all investors needed to keep the rally going. The Fed’s expected rate cut tonight should help to keep the S&P 500 analysis positive even as concerns over valuations and narrow market breadth raise some sustainability questions.

 

 

AI euphoria continues to drive sentiment

 

Our S&P 500 analysis has been bullish for a while and that still remains the case, thanks largely to the ongoing AI euphoria. A handful of mega cap tech names are carrying the market higher, and while that may not be sustainable, it is difficult to justify fighting this stock market rally. Nvidia’s rise to a $5 trillion – FIVE trillion – market cap today underscores how dominant AI has become in shaping sentiment. The company now accounts for nearly one-fifth of the S&P 500’s gains this year, making it more influential than ever before.

 

But while it’s hard to argue against this strong bullish momentum, the rally’s narrow breadth is becoming impossible to ignore. The S&P 500 has now logged five straight daily gains and is on pace for its longest monthly winning streak since 2021. But beneath the surface, participation remains limited, with most of the heavy lifting done by AI-linked stocks. That kind of concentration is not a healthy sign for the overall market. But until the tech stocks turn lower, I wouldn’t bet against this rally on the S&P 500.

 

Tech earnings: The real test for the S&P 500 analysis

 

This week’s earnings parade will test whether AI-driven valuations can hold up to scrutiny. Microsoft, Alphabet, and Meta will report their quarterly results after today’s close, followed by Amazon and Apple on Thursday. Traders will zero in on commentary around AI spending and, crucially, when those massive investments might start paying off. So far, markets have been generous with patience, but any sign of slower monetisation could quickly cool the euphoria and potentially caused a bit of correction in the S&P 500.

 

FOMC up next

 

Looking ahead, the Fed’s rate decision is due shortly with the central bank widely expected to deliver another cut. If the Fed accompanies the expected rate cut by dovish some commentary, this will only reinforce the bullish narrative around risk-taking. In other words, the market is betting the AI story still has legs and that policymakers at the Fed, or the world’s top leaders in Trump and Xi, won’t spoil the party.

 

Technical S&P 500 analysis: 7K within sight

 

From a technical point of view, the S&P 500 analysis remains bullish given the higher highs, higher lows, short-lived pull backs and so on and so forth. This appears like a market that’s running on high confidence, perhaps a little too much of it. The combination of dovish Fed expectations, diplomatic optimism, and AI mania has created a powerful cocktail for risk assets. But as history shows, rallies built on narrow leadership and sky-high expectations can turn fragile fast. So, take nothing for granted. Traders should trade with risk management in mind. Always. That doesn’t mean they should start shorting the market, as the trend is super bullish. Dip-buying is the strategy that has consistently worked during this bull run. More of the same is what we expect until the charts prove otherwise. From here, a bit of cooling shouldn’t surprise. But there are plenty of support levels that could provide a floor under any potential selling pressure.

 

 

As you can see from our US SP 500 chart, which is derived from the underlying S&P 500 futures, the prior resistance areas of 6750-6765 is now the most important support zone to watch. Ahead of that, the highs from the previous few days and intraday levels should not be ignored either. On the upside, there is not much in the way of obvious resistance until the next round handle of 7,000. Can we get there?

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R