S&P500 Hits Record as Traders Look for Elusive Catalyst

Right now, stock traders aren’t facing many immediate worries. U.S. companies continue to report strong earnings, the threat of a recession seems muted, and investors are hopeful that President Donald Trump’s trade policy will soon become clearer. On the surface, all seems calm in the markets.

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Still, some concerns are beginning to take shape under the surface. Even though the S&P 500 Index is only 2.3% away from its all-time high, it’s been having trouble crossing the 6,000 mark — a psychologically significant level. Before Friday, the index had gone seven consecutive trading days without moving more than 0.6% in either direction, which Bloomberg data shows is the longest such streak of calm since December.

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With a crucial inflation report due Wednesday, just as the Federal Reserve begins its quiet period ahead of its June 18 interest rate decision, investors are grappling with what could push the S&P 500 to fresh highs. The index has already surged 20% from its April lows. But many believe that more clarity is needed — especially on the trade front — before another big rally can begin.

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“To see U.S. stocks reach new records, we need to clear away uncertainty,” said Eric Diton, president and managing director at the Wealth Alliance. “But right now, there just aren’t enough clear catalysts until the trade war is sorted out.” His firm is now hedging portfolios in case of a pullback.

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Recent economic reports haven’t been particularly strong. Job growth in May slowed down, and both the services and manufacturing sectors are showing signs of weakness. Still, the market has largely shrugged off the data. Investors seem confident that Trump’s tariffs won’t inflict serious economic damage, and they’re pricing in minimal short-term risk. The Nasdaq 100 Index is now just 1.9% away from its own record high.

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Oliver Pursche, senior vice president at Wealthspire Advisors, warns that investors may be getting too comfortable. “My worry is that people are growing numb to the risks from trade tensions and economic data. They’re starting to dismiss warning signs when they pop up.”

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Attention is now turning to inflation. Economists expect the May consumer price index (CPI) to show a 0.3% increase in the core reading — which excludes food and energy — up from April’s 0.2% rise. That would put the annual rate at 2.9%, well above the Fed’s 2% target. Analysts at Wells Fargo expect inflation to accelerate in the second half of the year.

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Stronger economic data has rekindled hopes that Fed Chair Jerome Powell might begin cutting interest rates again by September. But at the same time, a surprise in the inflation numbers or a return of market volatility could trigger a sharp reversal in risk assets, leading to another wave of selling.

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Adding to the caution is the fact that the S&P 500 is underperforming global equities. So far in 2025, it trails the MSCI All Country World Index (excluding U.S. stocks) by nearly 12 percentage points — its worst relative start to a year since 1993. Michael Hartnett, a strategist at Bank of America, said that global stocks are nearing a technical “sell” signal due to stretched investor positioning.

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“As complacency rises, the potential for surprise also increases,” said Patrick Fruzzetti, a portfolio manager at Rose Advisors. He’s taking a more cautious stance and buying shares in sectors like health care and consumer staples, which typically offer lower valuations and more stable dividends.

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Even so, traders remain highly focused on major economic reports. Over the past three months, volatility in the S&P 500 has averaged 42% on days when CPI data, employment figures, or Fed decisions are released — much higher than the 29% average for other trading days, according to data from Asym 500.

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Since fund managers have recently reduced cash holdings and poured money into U.S. stocks, demand for protective strategies like hedging has declined. This makes the market more vulnerable to unexpected shocks — such as a hotter-than-expected CPI report. “I’m concerned that people are ignoring the risks because they believe everything will turn out fine,” Pursche said. “But they’re not watching the warning signs closely enough.”

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Still, some signs suggest investors aren’t fully committed to equities. Deutsche Bank data indicates that both rules-based and discretionary investors are still somewhat underweight stocks, meaning there’s still money on the sidelines that could move into the market.

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Looking ahead, a major challenge will be figuring out how tariffs are affecting inflation. Investors are split on whether the market can keep rising. “We’ve gotten used to the idea that tariffs take time to show up in the data,” said Brooke May, managing partner at Evans May Wealth. “But if CPI comes in hot, we could see another selloff. The real question is whether investors will use the dip as a buying opportunity — or start heading for the exits.”

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