S&P 500 Hits Record High, But Momentum Is Slowing

The S&P 500, which is an index that tracks how 500 leading stocks listed in the U.S. are doing, just hit another record high. On Monday, July 21, the S&P 500 hit a new record intra-day high of 6336.08. The index is up 2.4% so far this month, which is pretty strong. July is actually one of the best-performing months for the S&P 500, posting an average gain of 1.7%.

Further out, the S&P 500 is also up 6.5% year-to-date and 15% on an annual basis, as well as an astonishing 29% since April’s tariff-induced lows. The Nasdaq, which is also at record levels, has done exceptionally well since early April as well, soaring almost 40%.

Will This Momentum Continue?

There are signs the momentum is waning. The S&P 500 has gone 17 trading days without registering a move of more than 1% in either direction. The S&P 500 hasn’t traded in this tight of a range since December. The number of S&P 500 companies trading above their 20-day and 50-day moving averages has also slipped.

Why does it appear as though the momentum on the S&P 500 is cooling? U.S. President Donald Trump’s tariffs have been in the spotlight. So too has his criticism of the Federal Reserve and Fed chair Jerome Powell.

What about strong U.S. economic data? First quarter corporate earnings were better than expected and are projected to rise 13.7% on an annual basis. Job growth has held up, recession fears have faded, and inflation remains in check.

This economic resilience could be temporary. Upbeat economic data could be a result of businesses trying to get ahead of the tariffs, which boosted economic activity. The fact that we haven’t seen economic weakness doesn’t mean it’s not coming.

We may get an early read soon: The U.S. second-quarter earnings season has just started. Moreover, it’s the first full quarter where we’ll get to see how companies are doing since President Trump launched his global trade war on April 2.

The tight trading range on the S&P 500 is a signal that investors are waiting to see how the economy is doing. For the S&P 500 to register larger gains, investors will need to see strong corporate earnings growth. 

Maybe not as strong as what we saw in the first quarter, but still solid enough that tariffs haven’t wreaked havoc on profits or consumer inflation. Neither of which will be good for investor optimism or the stock market.

Keep in mind, one big issue with the S&P 500 is that its performance is weighted by market capitalization. That means the larger the company, the bigger the impact it has on how the S&P 500 is doing.

Technology stocks account for almost half of the S&P 500 index. If the tech sector or even one of the biggest tech stocks doesn’t perform well, it could result in the S&P 500 taking a tumble, which would be terrible for investor optimism. 

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