S&P 500 and Nasdaq Hit Record Highs as AI Concentration Grows and the Fed Eyes Another Hike: Key Levels

Record Highs on Tuesday, Small Caps Left Behind

A strong start to the week lifted the S&P 500 and the Nasdaq to record highs on Tuesday. Neither index was able to push its record higher as the week progressed, but both finished around 1% higher overall.

The Russell 2000 small-cap stock index underperformed for the week, extending a recent run of lagging results amid concerns about elevated interest rates. At Friday’s close, the Russell 2000 was down a cumulative 5.7% over the past five weeks, versus a 1.0% gain over that period for a U.S. large-cap index.

AI Concentration, Bond Yields, and What the Fed Is Signaling

AI has transformed market leadership, with a handful of mega-cap companies driving an outsized share of returns and market value. That concentration is both a strength and a potential vulnerability. While correction risks are rising as the cycle matures, growing profits and a Fed that may be looking to tap the brakes rather than slam on them suggest the bull market may still have room to run.

In the wake of recent bond market volatility, yields of 10-year and 30-year U.S. Treasuries were slightly lower overall for the week but remained near their highest levels in more than two decades. At Friday’s close, the 10-year yield was 5.24% and the 30-year was 5.60%. The 2-year Treasury fell to 4.79%, down from 4.84% the previous week.

Oil traded in a relatively narrow range for the second week in a row, a marked shift from the price volatility seen since Middle East tensions escalated in March and April. On Friday afternoon, U.S. crude was trading around $91.50 per barrel, up fractionally from a week earlier. As recently as mid-September, oil was trading as high as $105. In early April, it traded as high as $115.

Wednesday’s release of minutes from the latest Federal Reserve meeting showed that policymakers anticipate possibly raising interest rates again before year end, though it was unclear how soon such a raise might come. The Consumer Price Index report scheduled for release this Wednesday will provide a major data point for the Fed ahead of its policy meeting later this month. The most recent CPI report showed inflation at a 3.4% annual rate in August, unchanged from the previous month and still well above the Fed’s 2.0% target.

Key SPX and NDX Technical Levels to Watch

SPX support near 7,730, 7,615, and 7,500-07. Chart resistance appears near 7,844 and 7,890, with a possible extension to 8,000-8,040.

Nasdaq 100 support near 30,500, 30,150, 29,850, and 28,750. Resistance at 31,360 and 32,400.

In any case, as we always do at TheTechTrader.com, we’ll “Trade What We See, Not What We Think.”