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The US stock index registered a recovery, as the S&P 500 index rose to $6,976, and then declined. Earlier this week, the benchmark index closed near its previous record level before briefly moving higher in subsequent trading, while risk appetite in stocks varied markedly as weakness in cryptocurrency markets continued.
At the same time, Bitcoin continued to underperform, as selling pressure accelerated while capital flows favored riskier traditional assets. This divergence has become more pronounced in recent sessions, reinforcing the growing divide between stock and cryptocurrency sentiment.
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AI stocks and small caps are driving stocks’ momentum
Big tech stocks and semiconductor stocks led the S&P 500’s latest rally as investors returned to artificial intelligence stocks after a brief pause on valuations.
Alphabet hit a new record, Amazon rose ahead of earnings results, and chip stocks posted big gains as demand expectations improved.
There was also an improvement in the breadth of the market. Small-cap stocks have outperformed larger companies, with the Russell 2000 index posting gains of nearly 3% since the start of the year.
This relative performance is generally considered a sign of confidence in domestic growth and supports the general stock market outlook that momentum will continue as long as earnings growth remains strong.
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Earnings, not valuations, are now supporting the recovery
Make corporate results the main driver of market progress. Analysts now expect S&P 500 companies to post earnings growth of close to 11% in the December quarter, up significantly from the previous estimate in January.
Market regulators explain, according to FactSet data, that more than 80% of companies that announce their results have exceeded expectations so far.
Recent research suggests that earnings growth has contributed to about 84% of the S&P 500’s total returns in the current cycle, representing a shift away from valuation expansion as the primary driver of earnings. This shift has eased concerns about an AI bubble, as corporate profits and cash flows have multiplied to justify ever-higher prices.
The macro backdrop keeps risk appetite intact
So far the broader macroeconomic environment has supported the risk in stocks. US GDP growth remains close to 3.3%, while inflation trends remain relatively contained, and productivity indicators are improving. Even political turmoil, including a federal government shutdown that delayed the release of key data, did not materially impact market confidence.
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The main US indexes posted strong gains with the S&P 500, with the Dow Jones Industrial Average up more than 1% since the beginning of the year. But the Nasdaq Composite Index fell by about 2.6%.
Investors are now looking to future economic data and future policy signals from the Federal Reserve to confirm that financial conditions remain supportive.
Bitcoin’s weakness highlights the disparity between markets
Stocks rose while cryptocurrency markets went in the opposite direction. Bitcoin price fell below $65,000, hitting its lowest level in nearly a year and continuing a broader downward trend that is weighing on the digital asset.
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The decline occurred amid a fading momentum, a reduced speculative appetite, and a rotation of capital towards stocks that offer clear growth in profits.
The contrasting performances reflect a growing divergence between traditional risk assets and crypto-currencies, at least in the near term.
Both markets benefit from liquidity-driven events, but current conditions favor assets more directly linked to corporate earnings.
Main points of the article
The S&P 500’s move toward new highs reflects a rally increasingly based on earnings delivery rather than expanding valuations. Investments in AI, strength in small caps, and solid macroeconomic data continue to support the bullish scenario, even as record levels reach levels that call for selective caution.
Bitcoin’s fall to a one-year low highlights areas of declining risk appetite, but for now, equity markets remain firmly in control of the overall market risk narrative.
