Despite the closure of the Strait of Hormuz and the resulting fears that the Fed could keep monetary policy tighter for longer, not to say hike interest rates, the S&P 500 is up more than 10% year-to-date, the Dow Jones index has delivered similar gains, and the Nasdaq has rallied more than 18%.
Is the market getting ahead of itself?
From a macro perspective, the market’s optimism seems justified.
The U.S. economy continues to show resilience, with GDP growth of 2.1% on an annualized basis in the first quarter of 2026, up from a meager 0.5% in Q4 2025, while the latest GDPNow estimate points to around 1.2% growth in the second quarter.
Consumer confidence has also stabilized, with the University of Michigan’s final June consumer sentiment index rising to 49.5 from a record low of 44.8 in May, while the labor market continues to perform better than expected, with an unemployment rate of 4.3% and an increase of 172,000 nonfarm jobs, well above the forecast of 85,000.
Corporate fundamentals also remain solid. In the first quarter, 85% of S&P 500 companies reported earnings per share above analysts’ estimates — the highest share since Q2 2021 — while 59 companies issued positive earnings guidance, also marking the strongest reading since Q2 2021.
What about a tech bubble?
While valuations in parts of the tech sector do look stretched, comparing today’s market to the dot-com bubble would not be accurate, as companies like NVIDIA, Micron Technology, SK Hynix, and TSMC are already generating strong profits and cash flow, or continue to benefit from tight supply in key semiconductor markets.
That said, the massive AI spending from hyperscalers raises concerns. Just two years ago, Big Tech capex was around $250 billion a year; today, it is closer to $500 billion, driven by investments from Microsoft, Amazon, Google, and Oracle in AI infrastructure and data centers. If these projects fail to generate sufficient returns, the impact could extend beyond tech and weigh on the broader market.
Still, analysts remain cautiously optimistic about the outlook.
Barclays, for example, continues to favor equities over bonds, supported by the resilience of the U.S. economy and strong corporate earnings. However, following the recent rally, it has become slightly less confident, noting that much of the positive news is already priced in and that the upside potential is becoming more limited.