S&P 500 at all-time highs, but macro risks loom

US equities pushed to fresh all-time highs on strong tech earnings and momentumThe empirical fact that winners keep winning over the medium term., with the S&P 500 buoyed by NVIDIA, Microsoft, Palantir, and other AI-linked names. Wall Street veteran Ed Yardeni expressed confidence that the S&P 500 will breach 8,000 by end of 2026. However, the rally is sitting atop several powder kegs: gas prices are near $4.54 (up sharply from prior levels), consumer confidence remains depressed, and CPI is due Tuesday. Goldman and BofA's delayed rate-cut forecasts signal that the Fed will hold longer than expected, pressuring equities if growth disappoints.

The disconnect between equity valuations and macro signals is stark. Russell 2000 is at all-time highs, suggesting small-cap confidence in a reflationary environment. ISM manufacturing is above 52, indicating some economic resilience. But restaurants are described as "very empty" by market observers, and store shelves are overstock with electronic goods, suggesting demand destruction may be underway. Simon Property Group reported strong Gen Z traffic, but this may reflect promotional intensity rather than underlying health.

Tech earnings are the narrative anchor. Major earnings reports have supported strategist target raises, with focus on capex deployment and AI adoption. Amazon's negative FCF is being overlooked in favor of long-term growth optionality. NVIDIA earnings on May 21 will be the critical test of whether hyperscaler capex enthusiasm justifies current valuations. Sentiment reads as "cautious, but not bearish."

The bear case is rising in volume. If CPI remains elevated and the Fed signals another hold or hike in June, multiple compression could be sharp. The Hormuz closure is creating tail-risk inflationThe rate at which prices rise across an economy. that central banks cannot easily offset. Additionally, if hyperscaler capex growth slows (either due to logistics disruption or diminishing returns), the narrative flips from "AI capex peak" to "AI capex trough," deflating tech leadership. The market is priced for perfection; any disappointment will be swift.