Why wouldn't the S&P 500 keep rising if the economy is fine? Bloomberg consensus forecasts expansion of about 2% in 2026. Goldman Sachs expects even better — a 2.5% increase. For investors, the glass is half full, especially as the Fed plans further rate cuts while Treasury yields remain elevated. If yields were falling, recession fears would seep into the market. So all seems well — or is it?

Dynamics of US Stock Indices

The S&P 500 is approaching the psychologically important 7,000 level, while the Dow Jones is heading for 50,000 and has recorded its best start to the year since 2003. The Russell 2000 has showed the largest weekly divergence from the broad index since 2024. Investors are snapping up small?cap stocks like hotcakes. These names are sensitive to the health of the US economy. And the economy appears healthy.

Evidence comes from recent strong US data. Employment rose by 50,000 in December, as Bloomberg economists expected, and unemployment fell to 4.4%. Investors view the cooling labor market with understanding. Mass deportations, a smaller federal workforce, and lower net migration have reduced labor supply. Under these conditions, the economy does not need to add more than 50,000 jobs to look healthy.

Dynamics of US Nonfarm Payrolls

Another reason for the frenzied demand for small?cap stocks is fading hopes for the former leaders. For the first time in several years, the Magnificent Seven underperformed the S&P 500 in 2025. The forward price?to?earnings ratio of the stocks in that group stands at 29, a very high level that does not justify their large share in portfolios. A rotation is underway, and it is hitting the tech sector hard.

You need look no further for an example. Apple shares have fallen for eight consecutive trading sessions. One more such move would tie the anti?record set in 1991. An eight?day losing streak has occurred only four times in history — in 1998, 2016, 2022 and 2025.

However, it cannot be said that skies over the S&P 500 are cloudless. Reviving the issue of the Fed's loss of independence due to the lawsuit against Jerome Powell could trigger a new wave of the "sell America" trade. If the Fed starts dancing to the White House's tune, it would not sit well with the dollar or with US equity indices.

Technically, the daily chart shows that the S&P 500 shows a recovery of the uptrend. However, if bears manage to push quotes below fair value at 6,910, the Anti?Turtles reversal pattern would be activated, providing grounds for selling. As long as the broad index trades above that support level, it makes sense to stick with the current buy strategy.