A powerful tailwind is pushing the S&P 500 towards new highs

April and May marked the index’s best two-month run since 2020, with nine consecutive weeks of gains, its longest winning streak since 2023. And here’s some historical context: since 1950, a rally of 16% or more has occurred only 4 times. Each time it did, the S&P went on to rise an average of 17% through the rest of the year.

So, what’s driving this momentum? Strong historical patterns, resilience in the face of Middle East tensions, surging demand for chipmaker stocks, and impressive earnings. Goldman Sachs reports that hedge funds are snapping up US shares at the fastest pace in six months. And according to FactSet, corporate earnings jumped nearly 29% year over year in the first quarter, which, if it holds, would mark the best earnings season since 2021.

Now, it’s not that markets are completely ignoring geopolitics. When rumours surfaced that Iran might walk away from US negotiations over Israel’s strikes on Hezbollah, nine out of eleven S&P sectors closed in the red. But once again, tech, and the chipmaker frenzy in particular, rode to the rescue, pushing those shares to new records.

Looking ahead, there’s a risk that FOMO, the fear of missing out, eventually runs into the wall of higher inflation, rising Treasury yields, and slower growth. But for now, the bulls are firmly in control. And the US economy is holding up well, with the Manufacturing PMI hitting its highest level since May 2022.

If the Middle East cools down, oil prices ease, and US inflation slows, the Fed could find a reason to revisit rate cuts, giving the S&P 500 a fresh growth catalyst. That’s likely why Goldman Sachs just raised its year-end 2026 target for the index from 7,600 to 8,000.

The FxPro Analyst Team