What Happened in the Markets Last Week
Major Indices Hit Records Before Friday Selloff
The S&P 500, Nasdaq, and Dow all reached new record closing highs on Thursday, with the S&P climbing to 7,501.24 and the Dow crossing 50,000 for the first time. However, Friday brought a sharp reversal with the S&P falling 1.14% and the Nasdaq dropping 1.62% as investors took profits.
Energy Sector Surges While Tech Struggles
Energy stocks have vastly outperformed in 2026, gaining 21.5% year-to-date and rising 1.6% on Friday even as other sectors declined. Meanwhile, technology stocks are down 3% for the year, with major chip companies like Intel, AMD, and Nvidia posting significant losses on Friday.
Treasury Yields Spike to One-Year Highs
The 10-year Treasury yield surged nearly 14 basis points during the week to reach 4.59%, marking its highest level in almost a year. The 30-year bond yield jumped to 5.121%, the highest since May 2025, amid renewed inflation concerns and fears the Fed may need to maintain hawkish policy.
Materials and Industrials Lead Sector Gains
Materials stocks have climbed 17.6% year-to-date while industrials have gained 12.3%, significantly outperforming the broader market. Consumer staples have also posted strong gains of 15%, highlighting a notable rotation away from growth sectors into more cyclical areas.
Chip Stocks Retreat After Recent Rally
Semiconductor giants faced heavy selling pressure on Friday as investors took profits following recent gains in AI-related stocks. Intel fell more than 6%, while AMD and Micron Technology dropped 5.7% and 6.6% respectively, contributing to the tech sector’s underperformance.
S&P 500 Weekly Outlook
The S&P 500 enters the week at 7,408, having pulled back 1.24% from recent highs near 7,517 as technical resistance around 7,464-7,500 pressures the index. New Fed Chair Kevin Warsh’s hawkish stance and rising 10-year yields at 4.59% create a challenging backdrop for risk assets.
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Bull Case: What Could Drive the S&P 500 Higher
🏢 Breadth Recovery Momentum
Market breadth has shown improvement since the Iran conflict selloff nadir in late March. Participation across sectors suggests the rally has legs beyond mega-cap leadership.
💪 Economic Resilience
Despite inflation concerns, underlying economic fundamentals remain solid with corporate earnings holding up. The economy continues to show resilience even with the Fed’s hawkish pivot under new leadership.
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Bear Case: Risks That Could Weigh on the S&P 500
📊 Inflation Persistence
Core CPI jumped to 2.8% year-over-year in April, well above the Fed’s 2% target. Services inflation, tariffs, and energy costs are pushing out the timeline for rate cuts, pressuring equity valuations.
📉 Technical Deterioration
The RSI curve shows a falling trend signaling potential price weakness ahead. At 7,408, the index is testing key resistance with profit-taking pressure emerging after the recent rally to 7,517.
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Key Market Markers
📈 7,464-7,500 Resistance Zone
The S&P faces critical technical resistance around current levels after breaking its ascending channel. A clear break above 7,500 would target new highs, while failure could trigger deeper pullback to 7,000 support.
💸 10-Year Yield at 4.59%
Treasury yields hit their highest since February 2025, creating headwinds for equity valuations. Further yield expansion toward 4.7-4.8% could pressure growth stocks and high-multiple names.
😰 VIX at 18.43
Volatility remains elevated above its recent lows but well below stress levels seen during the Iran conflict. A move above 20 would signal increased market nervousness about the Fed’s new direction.
⚡ Geopolitical Tensions
War-driven inflation concerns continue influencing Treasury markets and Fed policy expectations. Energy price stability will be crucial for both inflation expectations and equity market sentiment.
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Bottom Line
The S&P 500 faces a critical inflection point around 7,464-7,500 resistance as new Fed leadership and persistent inflation create policy uncertainty. While technical support remains intact and breadth has improved, the combination of hawkish Fed rhetoric and elevated yields at 4.59% presents meaningful headwinds. Wednesday’s FOMC minutes will provide crucial insight into the Fed’s evolving stance under Warsh’s leadership. Traders should watch for either a decisive break above 7,500 toward new highs or a failure that could trigger a test of 7,000 support.
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