A month ago, we examined the trajectory of the S&P 500 (Index: SPX) to ask if the index was rising too much too fast. The verdict was that though prices had indeed risen very rapidly after 30 March 2026 through 29 May 2026, they were still short of rocketing past the upper threshold that signals order is at high risk of breaking down in the U.S. stock market.
If the S&P 500 done so and stayed elevated above that level, the unvarnished answer to the question would have been yes. If that happened, the market would have clearly entered into a more chaotic phase requiring investors to adapt accordingly.
That scenario however was averted as investors responded to new information that came as the publicly traded firms making big bets on AI technologies reported their earnings. Investors reacted to news of high capital expenditures combined with greatly diminished free cash flow for many of the tech industry's highest flyers to send their stock prices lower.
Since several of these company's have market capitalizations that give them outsize influence over the S&P 500 index as a whole, the two-month-old rally ran out of steam. The value of the index reverted back toward its mean trend trajectory.
The following chart presenting the relationship between the value of the S&P 500 and its underlying trailing year dividends per share captures these latest macro-developments for the index:
Through the close of trading on 2 July 2026, the S&P 500 is still above the long term trend that has become established since 29 December 2023, but is otherwise behaving in a relatively orderly manner. However, we can't say it's behaving normally because that's not the right kind of distribution to describe how stock prices behave in the real world.
In any case, that's how investors maintained the U.S. stock market's current relative state of order after a rally that saw stock prices rising too much too quickly!
Image credit: Levy Distribution by Maksim on Wikimedia Commons Public Domain CC0 1.0 Universal Deed.
Previously on Political Calculations
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Closing values for previous trading day.
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