The Tech Sector is Driving Wall Street's Record-breaking Rally, but How Long Can It Last?

After months of uncertainty fueled by tariffs, inflation fears, and ongoing geopolitical tensions, U.S. stocks have defied the odds. Both the S&P 500 and the Nasdaq Composite have staged a major recovery, reaching record highs for the first time in months.

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Now, investors are questioning whether this rebound marks the beginning of a sustained rally or just a temporary surge before another downturn.

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Much of the recent market strength has been driven by big technology names. The so-called “Magnificent Seven” — Apple, Microsoft, Nvidia, Amazon, Alphabet (Google), Meta Platforms, and Tesla — have collectively added $4.7 trillion in market capitalization since the market's recent low on April 8. Together, these giants now represent nearly $18 trillion in total value. Data from Dow Jones Market Data highlights the impact these companies have had on the market’s recovery.

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Alongside these tech titans, Coinbase Global has stood out as the top-performing stock in the S&P 500, soaring more than 140% since April. Other notable gainers include Seagate Technology and Microchip Technology, both of which have more than doubled in value in the same timeframe.

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At the sector level, tech and communication services have led the charge. The S&P 500’s information-technology sector has surged over 41% since early April, while communication services are up nearly 28%, outpacing the S&P 500’s 24% gain during that period, according to FactSet.

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But a crucial question remains: Is the rally broad-based or narrowly concentrated in a handful of large-cap stocks?

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One key measure, the New York Stock Exchange’s daily advance-decline (A/D) line — which tracks the difference between rising and falling stocks — reached an all-time high last Thursday. This is considered a bullish signal and suggests that the rally includes a wide swath of the market.

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According to Tom Essaye, founder of Sevens Report Research, this breadth indicator shows the rally is “historically healthy and likely sustainable.”

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Adding to the case for a broader rally, cyclical sectors such as industrials, financials, and materials have also posted strong returns. Since April 8, the industrials sector is up nearly 27%, while financials and materials have climbed about 19% each. These gains suggest that the rally isn’t solely being driven by tech, even if tech remains the most visible driver.

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Still, not all market signals are as optimistic. Another widely followed indicator — the percentage of S&P 500 stocks trading above their 200-day moving averages — offers a more cautious view. As of Thursday, only around 50% of S&P 500 stocks were trading above this long-term trend line. That figure remains well below the typical 65% to 80% range seen in strong, healthy markets. Back in early May, the number was even higher.

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Essaye noted the discrepancy between the bullish A/D line and the relatively weak 200-day moving average readings, suggesting the rally might be strong in some parts of the market but fragile in others. He warned that some gains may reflect short-lived counter-trend bounces rather than signs of long-term strength. For a more convincing bullish case, he said the percentage of stocks trading above their 200-day average needs to exceed the May high of 55%.

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The S&P 500 Equal Weight Index — which gives each constituent the same weight regardless of company size — has risen 18.7% since April 8. That compares with a 24% increase in the standard, market-cap-weighted S&P 500 index, suggesting that larger firms are still carrying a disproportionate share of the gains.

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Ben Fulton, CEO of WEBs Investments Inc., told MarketWatch that a sustainable rally will require broader participation beyond just tech and communication services. He emphasized that rate cuts from the Federal Reserve would be essential for sectors that are more sensitive to debt and financing costs to catch up.

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Several recent developments have also boosted investor confidence. President Donald Trump’s shift to a softer approach on tariffs, along with new trade agreements with major partners like the U.K. and China, have calmed markets. In addition, expectations for at least three quarter-point interest rate cuts from the Federal Reserve by year-end are helping fuel optimism. Inflation appears relatively unaffected by tariffs so far, and the ceasefire between Israel and Iran has further improved sentiment.

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All these factors combined to push U.S. stocks higher at the end of the week. According to FactSet, the S&P 500 posted a weekly gain of 3.4%, while the Dow Jones Industrial Average rose 3.8% and the Nasdaq Composite jumped 4.3%.

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In short, while the current rally has strong momentum and appears supported by both tech giants and a broader mix of sectors, questions remain about how sustainable it is. The divergence in market indicators suggests investors should remain cautiously optimistic, keeping an eye on rate policy, global trade developments, and whether more sectors join the rally in the months ahead.

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