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

• How Big is the AI Bubble and Is It Really a Bubble?
• The Definition of a Bubble
• The Ultimate Sell Signal
• What Caused the Dot Com Bubble to Begin and What Caused It to End?
• The Black Monday Stock Market Crash Explained
• Not Necessarily Wrong But Useful

The S&P 500 (Index: SPX) rebounded from the previous week's heavy rotation away from AI and technology stocks, which had sent the index lower because several of these stocks happen to be among the biggest components of the capitalization weighted index. Altogether, the S&P rose by a little under 1.8% on the strength of their rebound, closing at 7,483.24 on Thursday, 2 July 2026 before traders and investors both headed out for the long Fourth of July holiday weekend.

Perhaps the most notable headlines driving stock prices during the week were those reporting about the declines of oil and fuel prices. The oil shock from the Iran war geopolitical event had raised fears of prolonged high inflation as the impact of high oil and gas prices would progressively spread into other sectors of the economy.

Falling oil and gas prices however would mitigate those inflationary pressures. That in turn would reduce the odds of multiple interest rate hikes by the Federal Reserve in upcoming months.

Overall, we find the S&P 500's trajectory falls well within the new redzone forecast range we added to the alternative futures chart in the previous edition of this series:

This new redzone forecast range is based on the assumption investors will hold their forward-looking focus on the current quarter of 2026-Q3 as they set current day stock prices. That makes sense because the CME Group's FedWatch Tool projects the Fed will hike the Federal Funds rate by a quarter point to a target range of 3.75-4.00% after the Fed meets on 16 September (2026-Q3).

The bigger question right now is what will happen beyond that date. Through the close of trading on 2 July 2026, the FedWatch tool anticipates another quarter point rate hike on 17 March (2027-Q1). But that expectation has been fluid over the last several weeks. If oil and fuel prices continue falling, we would expect the probability the Fed will hike rates in 2027 will drop below 50%. If oil and gas prices drop more quickly in the weeks ahead, then the expected rate hike in September 2026 will come into question.

That possibility, and other market moving events, will be something investors consider as weigh what they absorb the random onset of new information from the newstreams in those upcoming weeks. Speaking of which, here are the market moving headlines from the week that was:

Monday, 29 June 2026

• Signs and portents for the U.S. economy:
• What's good for the US economy now may not be good for stocks
• Cheaper AI is better: Soaring bills are reshaping how businesses choose models
• Oil settles up on US-Iran strikes; cautious hopes for shipping cap gains
• Trump urges gasoline retailers to lower prices, warns of 'big problems' if they don't
• Fed minion with alleged ethics problems allowed to stay on job 'for now':
• Supreme Court lets Lisa Cook remain as a Federal Reserve governor for now
• Bigger trouble, stimulus developing in China:
• China's factory activity likely returned to meagre growth in June: Reuters poll
• Rate On China's New Overnight Liquidity Tool Comes Below Estimates, Hints At Imminent Easing
• China central bank conducts overnight reverse repos again, keeps rate at 1.25%, sources say
• China central bank doubles overnight cash injection, keeps rate unchanged, sources say
• ECB minions say Eurozone economy so good they can afford to hike rates:
• Europe's economic resilience gives ECB greater room to move rates, Lagarde says
• Euro zone corporate lending growth at 3-year high, ECB says
• Wall Street closed higher as tech rebounded and U.S.-Iran tensions eased
• Wall Street ends higher as US, Iran attacks ease; major tech-related shares jump

Tuesday, 30 June 2026

• Signs and portents for the U.S. economy:
• US single-family home prices ease on a monthly basis in April, FHFA says
• Oil falls as investors focus on potential Iran-US talks in Doha
• US retailers frontload China orders for holiday season, shipping firms say
• US job openings rise to two-year high, but hiring still struggling
• US expected to not extend USMCA, starting a decade-long countdown for trade pact
• Fed minions looking forward to some peace and quiet, still fear inflation and are starting to lose some of their best customers:
• Quarter-end expected to be quiet for Fed liquidity facilities
• Fed's Hammack tells CNBC rate hikes may be needed to quell high inflation
• For first time, more central banks are set to shrink dollar holdings, survey finds
• Some growth signs developing in China:
• China factory activity grows faster than expected in June on tech export demand
• Bigger trouble developing in Japan, BOJ minions credibility again at risk:
• Yen stumbles to 40-year low
• Japan keeps intervention rhetoric unchanged despite yen's slide to 40-year low
• Japan's May factory output growth lagged forecasts
• BOJ's slow, dovish revamp casts doubt over long-term rate-hike plans
• ECB minions suddenly rethinking their rate hike plans for Eurozone, still afraid of inflation:
• Surprisingly quick oil price retreat eases urgency for ECB to act, sources say
• ECB should not rush any further rate hike, Demarco says
• Lower oil price eases pressure on ECB to act, Dolenc says
• ECB's inflation fears linger despite oil price retreat
• S&P 500, Nasdaq register best quarter since 2020 despite Iran war
• Wall Street moved higher as tech continues to rebound
• AI, chip stocks continue to rebound, boosting Wall Street higher

Wednesday, 1 July 2026

• Signs and portents for the U.S. economy:
• US Manufacturing Expanded For 6th Straight Month In June As Inflation Fears Ease
• US factory activity eases off four-year high; input prices remain elevated
• Oil falls as markets await outcome of Iran-US talks, US stocks data
• New chief Fed minion lays out the central bank's agenda for Fed minions:
• Fed's Warsh vows to 'disappoint' anyone who thinks he will tolerate inflation above 2%
• Fed's Warsh plans to harness better economic data within a year
• Fed's Warsh says any balance sheet policy change won't be a surprise
• Mixed growth signs developing in China:
• China resale home prices fall faster in June, shows private survey
• China's factory activity completes strongest quarter since late 2020, private PMI shows
• Japan's economy shows signs of growth, BOJ minions salivate over opportunity to hike Japan's interest rates:
• Japan manufacturing extends growth, caps best quarter since Q1 2014, PMI shows
• Japan business mood hits 8-year high, builds case for BOJ rate hikes
• ECB minions plans to keep hiking rates may be put on hold:
• Euro zone inflation falls more than expected, adding to ECB case for patience
• U.S. stocks decline at the start of the second half of the year as tech struggles
• Wall Street ends choppy session lower as tech shares drop

Thursday, 2 July 2026

• Signs and portents for the U.S. economy:
• U.S. economy added 57,000 jobs in June, less than expected; unemployment rate at 4.2%
• US job growth likely cooled in June after recent string of big gains
• 2-year Treasury yield eases as light jobs report reduces Fed hike expectations
• US factory orders fall in May, weighed down by weak demand for commercial aircraft
• Oil falls for a third straight day after US, Iran conclude talks in Doha
• Why the U.S. housing shortage might be nearing its end
• Odds of rate hike before year-end fall; odds for one 25 bps cut rise
• Fed minions thinking about maybe not hiking U.S. interest rates, say their current monetary policies are 'slightly restrictive':
• Fed seen less likely to raise rates as job growth slows
• Cooling US jobs data buys the Fed and stock market more time
• Weak jobs, declining labor force, could renew Fed debate over state of labor market
• Fed's Daly says US policy 'slightly restrictive,' next step uncertain
• Bigger trouble, stimulus developing in China:
• Iran Runs Into Big Problem: No Buyers For Its Oil, As Full Tankers Pile Up Off China
• BOJ minions / Bigger trouble developing in Japan:
• Japan shifts to ambush intervention tactics against yen short sellers
• Yen Surges As Jittery Traders Expect Imminent Intervention After Japan Reveals New Strategy To Wipe Out Shorts
• ECB minions want to keep tight control over Eurozone banks to keep them from risk of failure, even if it means losing money:
• ECB pushes back on calls for lower bank capital levels
• German banks reject ECB's potential move to lift minimum reserves
• ECB considers lifting banks' minimum reserves to lessen own losses
• S&P 500 posts weekly gain, led by financials and communication services
• Nasdaq ends lower with tech; investors assess softer jobs data
• Dow jumps nearly 600 points to record close; Nasdaq slides as chip stocks suffer

The Atlanta Fed's GDPNow tool's estimate of real GDP growth for the U.S. economy in the current quarter of 2026-Q2 plunged to +1.2% from the previous week's real growth estimate of +2.5%.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull and bear watching a Fourth of July drone show".

The market capitalization of the S&P 500 (Index: SPX) rebounded strongly in the second quarter of 2026 after having shrunk by 1.5% in the first.

Since that Spring 2026 snapshot, the index's 503 stocks added $8.74 trillion to its total valuation, rising just shy of 15% over its market capitalization of three months earlier to reach a record high market cap of a shade over $67.185 trillion.

The index' top ten stocks contributed a little over a third of the index' total increase in value. Altogether, the combined market cap of these ten stocks account for 36.5% of the total value of the S&P 500, which believe it or not, represents a small decline from the 36.9% share they held at the end of March 2026.

The following chart shows the relative shares of the top 10 stocks in the S&P 500 at the end of the second quarter of 2026.

There has also been a change in the membership of the S&P 500's Top 10 stocks. Micron Technology (NASDAQ: MU has displaced Berkshire Hathaway (NYSE: BRK.B) from the tenth spot. Here are the approximate market capitalizations of each of the S&P 500's top ten component firms at the end of trading on 30 June 2026:

• Nvidia (NASDAQ: NVDA) $4,743,261,533,736 (7.06%)
• Apple (NASDAQ: AAPL) $4,185,625,970,988 (6.23%)
• Microsoft (NASDAQ: MSFT) $2,774,740,812,228 (4.13%)
• Amazon (NASDAQ: AMZN) $2,539,593,285,768 (3.78%)
• Alphabet (A) (NASDAQ: GOOGL) $2,217,105,249,480 (3.30%)
• Alphabet (C) (NASDAQ: GOOG) $2,055,861,231,336 (3.06%)
• Broadcom (NASDAQ: AVGO) $1,760,247,198,072 (2.62%)
• Tesla (NASDAQ: TSLA) $1,551,973,674,636 (2.31%)
• Meta Platforms (A) (NASDAQ: META) $1,417,603,659,516 (2.11%)
• Micron Technology (NASDAQ: MU) $1,249,641,140,616 (1.86%)

Aside from Micron Technology's incredible ~750% year-long ascent to become one of index' Top 10 component stocks, there was some low level jockeying in the ranks of these most highly valued U.S. stocks. Meta Platforms dropped two positions from sixth to eighth as the company's missteps with its investments in AI technology proved costlier than anticipated, while both Broadcom and Tesla moved up one slot into the gaps left behind.

The S&P 500 now has 12 stocks for 11 companies whose market capitalizations exceed the trillion dollar level. Although no longer part of the index' top ten stocks, Berkshire Hathaway retained its trillion dollar valuation, while shares of Eli Lilly (NYSE: LLY) rose to tie it for 11th place.

References

Standard and Poor. S&P 500 Factsheet. [PDF Document]. 30 June 2026. Accessed 1 July 2026.

SlickCharts. S&P 500 Component Weights. 30 June 2026. Accessed 1 July 2026.

Motio Research's initial estimate of U.S. median household income for May 2026 is $88,480. This value represents a $190 (or 0.2%) increase from the firm's initial estimate of $88,290 for April 2026.

Here are screenshots of the interactive charts Motio Research provides to visualize trends in the U.S.' median household income. The first chart presents the firm's Household Income Index, which is based on a three-month moving average that sets the period of January 2010 through March 2010 at a value of 100. The second chart presents their monthly median household income estimates in nominal (not adjusted for inflation) terms for the period from January 2010 through May 2026.

Household Income Index

Median Household Income Estimates

The U.S. Real Median Household Income Index has a value of 119.6 for May 2026. Motio Research's data indicates median household income has risen about 2.7% since May 2025.

Analyst's Notes

Political Calculations' initial estimate of median household income in May 2026 is $87,643, which is up $199 (or +0.2%) from our initial estimate of $87,444 for April 2026.

The following chart presents our estimates of U.S. median household income, both adjusted for inflation (blue) and not-adjusted for inflation (red) for each month from January 2000 through May 2026.

Political Calculations' May 2026 estimate is $837 (or a little under 1%) below Motio Research's survey-based estimate of $88,480 for the month. The BEA's aggregate wage and salary income data used in generating our median household income estimates had small upward revisions for the earlier months of 2026, with very small revisions in January and February (~0.01%), and larger adjustments for March (+0.08%) and April (+0.16%).

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 25 June 2026. Accessed: 25 June 2026.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 25 June 2026. Accessed: 25 June 2026.

Image credit: U.S. Census Bureau. We modified the public domain image to make it more generally applicable beyond reporting the median household income from 2022.

The U.S. economy received an upside surprise in the third and final estimate of GDP for the first quarter of 2026. In nominal (not adjusted for inflation) terms, the nation's GDP reached $31.866 trillion after growing by an annualized rate of 5.76% over the previous quarter. The actual year-over-year increase in nominal GDP is 6.07%.

That's $361.7 billion (or 1.1%) higher than had been forecast by the climbing limo GDP forecasting method nearly three quarters ago, which we anticipated would understate the economy's growth.

Reports indicate business investments in Artificial Intelligence (AI) technology are responsible for the outperformance:

The most striking feature of the Q1 data is not its size but its composition. Business investment jumped 10.6% in the first quarter, a sharp acceleration from the 2.4% recorded in Q4 2025. Nearly all of that increase was concentrated in information processing equipment — computers, servers, and the physical infrastructure powering the artificial intelligence buildout — along with software and research and development spending.

Analyst estimates based on BEA sub-component data suggest that AI-related investment contributed roughly three-quarters of the quarter’s total GDP growth. The information sector, federal government spending, professional and scientific services, and durable goods manufacturing were the leading industry contributors. Meanwhile, retail trade, wholesale trade, and finance and insurance all declined.

Looking forward, the climbing limo GDP forecasting method anticipates nominal GDP will continue rising in 2026-Q2, reaching around $32.75 trillion. The following chart shows how actual non-inflation adjusted GDP estimates are tracking with the model's previous projections:

This estimate assumes the momentum the U.S. economy recorded in growing between 2025-Q1 and 2025-Q3 will be sustained through the ending calendar quarter of 2026-Q2. Given the momentum of actual GDP and the impact of the Iran war geopolitical event that wasn't a factor influencing the projection of GDP at the time of the model's momentum-based forecast, we think the climbing limo's projection of nominal GDP in 2026-Q2 will overstated.

The most distant future projection we can make with available finalized GDP data is for 2026-Q4, where the climbing limo forecasting method anticipates the nation's nominal GDP will end the year around $33.05 trillion.

References

U.S. Bureau of Economic Analysis. National Income and Product Accounts. Table 1.1.5. Gross Domestic Product. [Online Database]. Accessed 25 June 2026.

Image Credit: Microsoft Copilot Designer. Prompt: "A chart showing a limousine driving up a bumpy GDP trajectory that rises over time".