Since last week, the S&P 500 Index (SPX) has made a sharp turn from flirting with all-time highs to a steep retreat. Selling pressure intensified after the US Federal Reserve (Fed) held interest rates at 3.75% and delivered a sharper-than-expected signal on its policy roadmap.
But here’s the twist: the American economy is still firing on all cylinders—and this is exactly what’s hurting stocks. Strong retail sales and solid employment numbers show that consumers are spending, and the labor market isn’t showing any signs of cracking. In normal times, this would be a green light for equities. Right now, however, it is only adding fuel to the fire: fears that inflation won’t cool fast enough and rate cuts will remain a distant hope.
Yesterday’s Fed meeting only reinforced this anxiety. As widely anticipated, the central bank kept borrowing costs at 3.75%, though it quietly shaved down its economic forecasts. To be specific, the regulator expects the average rate to hit 3.8% in 2026 (up from the previous 3.4%), with projections for 2027 and 2028 also staying above long-term levels. Even more telling, it no longer sees inflation returning to the 2% target before 2028, conceding that the road ahead is going to be bumpy.
The index’s heavy tech tilt is another red flag. More than half of the S&P 500’s value is now tied to AI-related companies. On the one hand, this is a powerful tailwind for the long haul. On the other, this leaves the index dangerously exposed to sharp pullbacks, given the sector’s already stratospheric valuations.
The final recommendation:
— Sell SPX at the current price, aiming for $7,250 within one to two weeks.
— To shield your position from a downside move, place a Stop Loss order just above the resistance level, i.e., at $7,575.
