By Antonio Di Giacomo, Senior Market Analyst at XS.com
The S&P 500 remains above the 6,970-point level amid increased investor caution, amid mixed signals from the U.S. economy. After the strong rally seen in previous sessions, the index has entered a consolidation phase, reflecting a balance between optimism driven by corporate earnings and concerns over the strength of economic growth.
The momentum supporting the market in recent days has come mainly from the technology sector, particularly companies involved in the development of artificial intelligence and in data center investment. These areas continue to be viewed as structural growth drivers, allowing the index to hold at elevated levels despite a less dynamic macroeconomic environment.
Nevertheless, the economic outlook shows signs of deceleration, limiting a broader market advance. December retail sales were flat and below expectations, reinforcing the perception of a gradual cooling in consumer spending toward the end of 2025. This factor has fostered greater prudence, given that household consumption has been one of the main pillars of the U.S. economy.
The moderation in consumption has led investors to adopt a more selective approach, favoring companies with solid fundamentals, healthy balance sheets, and the ability to sustain margins in a slower-growth environment. As a result, the S&P 500 has shown resilience, albeit with higher volatility and more differentiated movements among its components.
The corporate earnings season remains a key factor shaping market dynamics. The index’s behavior reflects increasing dispersion, with gains concentrated in companies that beat expectations and sharper corrections in those that disappoint or revise guidance lower, confirming a less broad-based market than in previous phases.
This environment has strengthened sector rotation and interest in defensive segments or companies with recurring revenues, while more economically sensitive sectors face greater scrutiny. Selectivity has become a defining feature, limiting widespread advances but helping to prevent sharp declines in the index.
In the short term, market attention is focused on upcoming employment and inflation data, which will be crucial for assessing economic strength and the scope for monetary policy maneuvering. Readings that confirm an orderly slowdown could support the current balance between risk and caution.
These indicators will also influence expectations regarding potential adjustments to Federal Reserve policy later in the year. A backdrop of more contained inflation and moderate growth could support a more flexible stance, providing a supportive factor for equity markets.
In conclusion, the S&P 500 remains in a consolidation phase at historically elevated levels, reflecting confidence in long-term fundamentals but also heightened sensitivity to macroeconomic data. The current environment calls for prudence and careful asset selection in a market that continues to find support, though with less room for broad and generalized moves.