Weekly Stock Market Update & SPY Technical Analysis
The market hit another record high last week as investors shrugged off weak U.S. labor data and focused on the path to rate cuts. The economy added just 22,000 jobs in August, with earlier months revised lower, highlighting the drag from high rates, tariffs, and rising costs. While tighter policy curbs inflation, it also slows growth and hiring. With inflation around the 2% target and unemployment edging higher, the Fed has more reason to pivot, and markets are betting easier policy will arrive soon, even as the economic backdrop weakens.
Markets climbing to new highs in the face of economic weakness is a perfect reminder that the stock market isn’t the economy. It reacts to expectations, policy, and sentiment, not the day to day health of Main Street. Wall Street is so focused on artificial intelligence and the digitalization of the globe right now, that it’s willing to look past economic headwinds and maintain optimism that AI will unlock trillions in value. Record earnings from large cap tech is reinforcing this idea, with prominent leaders still projecting to spend billions on artificial intelligence infrastructure in the coming years.
AI-specific capital expenses now make up 1.2% of the U.S. GDP, the last time a single industry made up that much of the GDP was during the railroad expansion in the 19th century. Railway expansion proved successful in the long run, but the early years were brutal as spending outpaced returns, a bit similar to what we’re seeing in AI right now. Investors are definitely pushing companies past normal valuations in hopes that AI will significantly boost productivity, but it is still early days to know whether this wave of spending will pay off as expected. Just like the railroads, AI could transform the economy over decades, but in the near term we may see volatility, uneven adoption, and investors getting ahead of actual returns.
Back to the now…
It’s really impossible to say what will happen in the next 12 months, but for now the market is undeniably bullish. Buyers have now faced many headwinds, from tariff shocks, geopolitical uncertainty, and even weak consumer sentiment, however the optimism around artificial intelligence is eclipsing all the red flags. We try to approach our investments and trades with those red flags in mind, but we’ve also been in the market long enough to capitalize on the rally when it’s taking place. For now, we are still taking on positions in Hyper Stocks Pro that we believe have lagged behind and will continue to do so unless we get a pivotal signal.
Economic focus:
All eyes are on inflation this week, with CPI and PPI reports likely to steer market sentiment. Investors want reassurance that price pressures are easing enough to keep the Fed on course for rate cuts. Stronger readings could revive fears of sticky inflation and delay policy shifts, while softer data would likely boost confidence and push equities higher. The stakes are high and uncertainty is prevalent, especially with tariffs driving prices higher in recent months. CPI is expected to grow from 2.7% to 2.9% on this reading, away from The Fed’s 2% target, leaving The Fed in a tight spot of having to choose whether to lower rates to help the labor market or leave them unchanged to control inflation. We’ll be updating the results in real time this week on our morning updates.