Narrow but relentless, the AI rally has carried the index to fresh highs even as the rest of the market struggles with elevated rates
The S&P 500 and the Nasdaq composite closed at record highs Tuesday, with the S&P breaching the 7,800 mark for the first time.
The gains came almost entirely from a tight cluster of technology stocks tied to the artificial intelligence buildout while most of the market moved in the opposite direction.
Nvidia, which has emerged as the dominant supplier of chips powering AI data centers, jumped 4.5% in the past week to an all-time high, according to the Wall Street Journal. Meta Platforms has climbed approximately 24% since Aug. 13, when the index set its previous closing record. The combined market capitalization of the so-called Magnificent Seven (Nvidia, Meta, Alphabet, Amazon, Microsoft, Apple and Tesla) closed at a record high of roughly $25 trillion.
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Meanwhile, oil markets moved higher Wednesday as fresh Houthi attacks on Saudi Arabian airports in Jazan and Najran stoked fears of renewed supply disruptions from the Middle East. Brent crude for December delivery gained 0.93% to $101.52 a barrel, while U.S. West Texas Intermediate for November advanced 0.81% to $90.16 per barrel.
The rest of the market is not keeping up
Less than half of S&P 500 constituents closed above their 200-day moving average on Tuesday, according to Dow Jones Market Data; a figure that has been declining since August. The Russell 2000 small-cap index, the Dow Jones Industrial Average, and even the equal-weighted version of the S&P 500 are all trailing the benchmark over the past month.
Healthcare companies, banks, consumer staples and blue-chip industrials are broadly lower. Ten-year Treasury yields, which retreated slightly Tuesday, remain near their highest level in two decades; a headwind for most companies outside the largest tech players.
"Higher interest rates and inflation are taking a toll on other stocks in the S&P 500," said Dan Russo, chief investment officer at Potomac Fund Management, in comments reported by the Journal. "It's only the fortresslike balance sheets at the large-cap end of the spectrum that are propping the market up."
Why tech is holding
The conventional logic holding up mega-cap tech is that AI hyperscalers Alphabet, Amazon, Microsoft and Meta carry relatively low debt and strong cash generation compared with most of the index, making them more resilient in a high-rate environment. That view is being tested: all four are now spending tens of billions of dollars to build out AI infrastructure, lifting their debt loads. But investors, for now, appear unfazed.
The market's narrow leadership is not new but its degree is. The gap between the index's largest winners and the rest has widened considerably heading into the fourth quarter of 2026.
Warnings about a potential reversal are circulating at the institutional level. Temasek, Singapore's state investment firm, told the Milken Asia Summit this week that a reversal in the AI trade represents the biggest risk to global markets, with chief investment officer Rohit Sipahimalani noting that "AI is such a fast-changing environment that things could change quite easily," according to CNBC.
Wednesday brings the release of minutes from the Federal Reserve's September meeting - the central bank's first rate hike since 2023 - which may offer further clues on the rate path ahead.
Also: SpaceX eyes $40 billion raise for Nvidia chips
In a separate development with implications for Nvidia's growth trajectory, Bloomberg reported that SpaceX is seeking to raise approximately $40 billion in new financing, with a significant portion earmarked for Nvidia chip purchases to expand its AI computing infrastructure.
Elon Musk previously confirmed that SpaceX would rely exclusively on Nvidia's hardware for its AI data centers, targeting more than two gigawatts of computing capacity by end of 2026.
