S&P 500 is likely to reverse course after hitting new all-time highs

The S&P 500 Index (SPX) keeps trending upward, hovering near its all-time high of 7,540. The primary engine behind this relentless rally has been progress in US-Iran peace talks. As tensions eased, crude prices dropped, and investors turned their attention back to riskier assets like American stocks.

The index is also underpinned by strong fundamentals due to a successful earnings season. Over 80% of S&P 500 companies reported better-than-expected results. Prospects for the tech sector’s revenue continue to improve, especially in the artificial intelligence (AI) segment. These tailwinds have helped SPX to offset the negative effects of stubborn inflation and the Federal Reserve’s (Fed) hawkish policy.

Despite some progress, the Middle East crisis has not yet been resolved. Although there have been positive statements from the parties involved, no final agreements have been reached, and the oil market remains quite sensitive to any developments. It won’t take much for crude prices to skyrocket again, dragging inflation higher with them, if diplomatic efforts fail. In this case, the US stock market would take another hit.

In the short term, a correction in SPX looks more likely than a further upward move. A combination of persistent inflation, tight monetary conditions, weak consumer sentiment, and overvalued tech stocks does not create the best environment for the current rally to continue. Any deterioration in macroeconomic data could trigger a sell-off and drive the index back down to lower support levels.

From a technical standpoint, the picture is slightly different. SPX is now recovering from the recent correction. The Stochastic Indicator, with its lines crossing and surging higher, signals buying momentum. Meanwhile, the Chaikin Oscillator has merely stabilized following a sharp decline, showing no signs of sustained position accumulation. The achievement of historical peaks has not been accompanied by an increase in trading volume, hinting at the final phase of the rally.

Take into account the following trading strategy:

Sell SPX at the current price. Place Take profit at 7,400. Set Stop loss at 7,600.

The forecast remains relevant between May 25 and June 1, 2026.