AI Spending Lifts S&P 500 to Records as High Yields Threaten Growth

The S&P 500 Index (SPX) is making new all-time highs, supported by strong earnings, artificial intelligence spending, and fresh investment inflows. The tension is that stocks keep climbing while expensive borrowing and persistent inflation put more pressure on the economy beneath them.

In One Minute

The S&P 500 still has a path toward 8,000 by year-end while it holds above 7,575. Strong business activity and artificial intelligence investment are supporting that outlook, even with the United States 10 Year Treasury Note (US10Y) yield around 5.3%. The biggest risk is that yields above 5% eventually overwhelm that support, especially if technology spending slows. Watch the index’s support, the next earnings season, and whether Treasury yields begin retreating below 5%.

The Bigger Picture

Stocks and artificial intelligence

Stocks are rising because earnings and economic activity remain strong enough to absorb higher borrowing costs for now. The S&P 500’s price-to-earnings ratio is lower than at the beginning of the year, despite new highs, because earnings have increased substantially. Much of that improvement is concentrated in artificial intelligence companies, making their continued performance especially important.

Major technology companies are spending approximately $1 trillion, providing substantial support to business activity. Without that investment, the economy could already be in recession, given the pressure from borrowing costs, fuel, and everyday expenses. That keeps me constructive through the end of 2026 but cautious about 2027 and beyond, especially if artificial intelligence capital spending slows.

Treasury yields and inflation

Treasury yields reflect strong growth, persistent inflation, and competition for investment money. Technology companies are issuing debt while the government is also borrowing heavily, and that competition can require higher rates to attract buyers. Efforts to influence the bond market can also unsettle investors by raising concerns about government control of the yield curve.

Core inflation remains above 3%, compared with the Federal Reserve’s 2% target. The concern is not necessarily a return to inflation of 10%, 15%, or even 7%, but a prolonged period between 3% and 4%. Over 5 or 10 years, those continuing increases create substantial pressure on household budgets.

Where Markets Stand

The S&P 500

The S&P 500 reached another record on Tuesday, October 6. Slightly better inflation data, strong manufacturing and services activity, expectations for another strong earnings season, and new quarter inflows are supporting the move. Rising rates in Japan and Europe also leave the United States attractive to investors looking for a place to put their money.

The bullish dividing line remains 7,575, with 8,000 the year-end target. The index briefly fell below its neutral zone on September 16, when the Fed raised rates and signaled a firm stance on inflation, but recovered the next day. A return to that neutral zone would move me toward a more patient, wait and see position.

The next resistance comes from a rising trend line extending through the 2022 lows and later turning points, including June and August highs. Previous tests have produced pullbacks, and the remaining distance is approximately 1.37% to 1.75%, putting another test within reach over the next couple of weeks. Prediction markets assign a 20% chance to a year-end close between 7,800 and 8,000.

Economic data and the Fed

The Atlanta Federal Reserve’s GDPNow estimate is above 5% growth for the quarter, although that estimate can fluctuate. Manufacturing, services, and purchasing managers’ surveys remain strong, while the latest jobs figure came in at 29,000 against 89,000 expected. The latest Personal Consumption Expenditures inflation reading was also slightly better than expected, creating a mix of resilient activity, softer hiring, and modest inflation relief.

Two Fed meetings remain this year. The CME FedWatch Tool shows approximately an 80% probability of no change at the next decision, while separate prediction market pricing assigns a 58% probability to rates being above 4.25% by year-end. I favor no October increase because softer hiring and slightly better inflation give the Fed a reason to wait for another month of evidence.

The near-term expectation is for the 10 Year Treasury yield to retreat below 5%. Even in a recession, however, it might only fall to 4% or perhaps 3.5%, because inflation may prevent a return to pandemic-era borrowing costs. A pause in rate increases would acknowledge slowing growth without establishing that inflation is under control.

Oil and diesel

West Texas Intermediate Crude Oil (WTI) is around $87 per barrel after falling since the middle of September and struggling to stay above $100. Reduced tensions between the United States and Iran, some shipments moving through the Strait of Hormuz, and relative United States energy independence have helped ease pressure. Technically, oil broke below a rising trend line, returned to test it, and was rejected, supporting further downside toward $78 by the midterm elections.

That $78 level could become a holding area unless tanker passage through the Strait of Hormuz and the Red Sea becomes unrestricted. A meaningful resolution could open the way into the $60s and potentially the $50s. Until then, $78 remains the immediate target.

Diesel remains near record levels despite easing somewhat from September highs. That keeps transportation costs elevated, particularly for inexpensive goods such as lettuce priced at $1.99 or $2.99, where shipping expenses can meaningfully affect the final price. Companies can temporarily absorb those costs through lower profits, but the longer diesel stays expensive, the more pressure they face to pass them to customers.

Gold

Gold (XAUUSD) rose about 1% as yields eased, but it remains near a critical rising support line beginning in early May 2025. That line connects several important turning points, and the latest bounce was smaller than the earlier recovery. Buyers remain in control while support holds, although repeated tests after a weaker rebound deserve attention.

A break below $4,100 opens the way toward $3,950, the important July low. If $3,950 fails, the next major target is $3,500, where repeated earlier resistance could become support after the previous breakout. Around $3,500, I would look toward substantial physical gold accumulation rather than only shorter-term trades through SPDR Gold Shares (GLD).

The longer-term gold target remains $13,000 between 2029 and 2031. That view rests on government debt and money supply, and it can coexist with a significant near-term decline. Right now, the immediate question is whether the current support line survives.

Digital Assets and Crypto

Bitcoin

Bitcoin (BTC) is consolidating after rallying from around $60,000. It broke above a descending trend line from the all-time high, formed a bull flag, meaning a pause after a sharp advance, and then moved higher again. That structure still gives the chart a slight bullish bias, but much of the near-term recovery has already happened.

The next resistance is $87,200, and a successful breakout supports a measured move toward $97,000 based on the preceding pattern. The key downside level is $81,300, where a break would weaken the setup and bring lower support into focus. If deeper support also fails, a return to the $60,000 range becomes possible.

Prediction markets assign a 10% probability to Bitcoin crossing $100,000 before November and a 30% probability by December 2026. I still expect another test of $100,000 within the next year, but Bitcoin may need a pullback first. Continued stock market strength could support another advance, while a broader equity decline could increase the risk of a deeper crypto correction.

The longer-term case centers on government borrowing and demand for alternatives to dollar-denominated assets. Bitcoin could benefit, but it deserves more caution than gold because it is much newer. When Bitcoin reached $127,000, enthusiasm included predictions of $1 million by year-end, a reminder that confidence in the asset does not make every entry price attractive.

What’s at Stake

Debt and banking pressure

HSBC Holdings plc (HSBC) warned about a 5% Treasury yield when the 10 Year Treasury was around 4.5%. Stocks have continued higher, but a delayed reaction does not remove the risk of expensive financing. Reports of substantial loan losses at JPMorgan Chase & Co. (JPM) and a meeting with the Federal Reserve Bank of New York also deserve attention as possible signs of credit stress, rather than proof of an immediate crisis.

The federal debt comparison is approximately $15 trillion or less in the earlier period versus roughly $40 trillion now. Annual interest payments of around $1 trillion absorb money that could otherwise support infrastructure, health care, and other needs. That larger debt burden makes yields above 5% more difficult to sustain than earlier periods when yields exceeded 6% or 7%.

Consumers, businesses, and housing

Strong aggregate data does not remove the pressure from higher utility bills, fuel expenses, transportation costs, and financing. Companies may absorb these expenses initially, but persistent pressure can reduce margins, weaken credit quality, or increase customer prices. Households face the same squeeze through everyday spending and borrowing.

Housing requires particular caution when mortgage borrowing is this expensive, although paying cash changes the calculation. Persistently high yields can weaken demand and pressure home prices, while some pandemic buyers who waived inspections now face major repair costs before selling. Offers approximately $100,000 above asking prices illustrate how fear of missing out can leave buyers vulnerable when conditions change.

Oil has been falling while Treasury yields have risen since September, showing that the bond market is responding to more than energy prices. Higher borrowing costs can slow activity and reduce oil demand even without another increase in crude. Investment spending and policy tools may postpone a larger disruption through this year, but I remain cautious about longer-term financial stress, including the possibility of a broader downturn around the 100-year Great Depression cycle, without a defined timetable.

Levels to Watch 

What Supports Further Gains

Stocks retain their constructive setup while the S&P 500 holds above 7,575 and earnings continue supporting the advance toward 8,000. Continued artificial intelligence spending, fresh inflows, and slightly better inflation could help offset borrowing pressure. Potential congressional gridlock after the midterms could also support stocks by reducing the likelihood of major policy changes, although it would not resolve debt concerns.

Gold’s immediate bullish condition is that its rising support line holds, with easing yields helping buyers defend it. Bitcoin needs to clear $87,200 to strengthen the case for $97,000, while $100,000 remains the expectation within the next year. These setups favor waiting for support to hold or resistance to break rather than chasing an extended move.

What Could Drive a Decline

The broader risk is that Treasury yields remain above 5% long enough to weaken demand, company margins, and credit conditions. A slowdown in artificial intelligence spending would remove a major offset, while a move below the S&P 500’s 7,575 dividing line would weaken its bullish structure. Persistent diesel costs could keep inflation elevated even as crude falls.

Gold below $4,100 brings $3,950 into play, followed by $3,500 if that support fails. Bitcoin below $81,300 weakens its recovery, with further support failure risking the $60,000 range. Oil’s failed trend line retest already favors $78, while unrestricted shipping could deepen the decline into the $60s or $50s.

What to Watch Next

Watch the coming earnings season, the next employment and inflation readings, and the Fed’s remaining two meetings. Another weak jobs report would make waiting more compelling, while persistent inflation would keep further tightening in the discussion. Also watch whether the 10 Year Treasury yield falls below 5% or continues placing pressure on the economy.

For price confirmation, focus on the S&P 500’s approaching trend line, oil’s path toward $78, and gold’s defense of $4,100. Bitcoin’s immediate decision sits between support at $81,300 and resistance at $87,200. Developments affecting tanker access through the Strait of Hormuz and the Red Sea remain important for oil’s deeper downside scenario.

Bottom Line

The main question is whether earnings and artificial intelligence spending can keep supporting stocks while Treasury yields remain above 5%. That relationship also matters for oil demand, gold’s support test, and Bitcoin’s ability to extend its recovery. Stay patient and let the stated levels confirm the next move before committing more money.