The S&P 500 Index (SPX) is sitting around $7,700, not so far from its record peak. Despite sky-high interest rates and climbing Treasury yields, the fundamentals still argue for more upside ahead.
First things first: what's fueling the rally? Shifting bets on the Federal Reserve's (Fed) next move. September's jobs report was disappointing—only 29,000 jobs were added, compared to the anticipated 90,000—and the unemployment rate rose to 4.2%. This has knocked the odds of an October hike way down and ramped up hopes for a softer policy path ahead.
It's no surprise, then, that the stock market welcomed such good news. Lower rates shrink the cost of capital for companies while making equities more tempting relative to fixed‑income instruments. Why does this matter so much? Because the tech sector is particularly rate‑sensitive, and these big names carry the heaviest aggregate weighting within the S&P 500 Index.
The picture looks even brighter on the earnings front. SPX firms are expected to report third-quarter (Q3) profits that are more than 25% higher than last year's. Solid numbers from Big Tech and nonstop spending on artificial intelligence (AI) infrastructure are keeping the index parked near record levels. In other words, the earnings engine is still firing on all cylinders.
That said, not everything is rosy. The bond market is the fly in the ointment. And here's why: the 10-year Treasury yield has recently touched 5.34%—a 20-year peak. With returns stuck above 5%, bonds start looking like a serious rival to stocks, capping the S&P 500's room to run. Put simply, high yields are the one thing standing in the way of a clean breakout.
Nevertheless, the overall balance of forces leans bullish for US equities. This suggests that the index is likely to retest its all-time peak within the next month.
The final recommendation:
— Buy SPX at the current level ($7,710), aiming to reach $7,815 within one month.
— To keep risk in check in case the market moves against us, place a Stop Loss order at $7,615.
This content is for informational purposes only and is not intended to be investing advice.
