S&P 500 Nears Record High- But These 3 Warning Signs Suggest Trouble Ahead

Buoyed by the strong boost from so-called "value" stocks collectively gaining strength, the U.S. stock market rose again on Thursday, with the benchmark S&P 500 index recording gains for four consecutive trading days. Value stocks focused on "high-dividend" types took over the "bottom-rebound banner" from the large-cap tech giants (including Tesla, Nvidia, and Apple, among others) that had led the market for three straight days. The overall robust performance of value stocks fully offset the negative impact of weak performances in the tech, retail, and energy sectors.

The latest statistics show that as of Thursday's close, the S&P 500 index rose 0.4% with the strong support of value stocks, while the Nasdaq 100 index, regarded as the "global bellwether for tech stocks," edged up just 0.1%. This was mainly due to the collective decline of the seven tech giants that hold significant weight in the index, whereas these same giants had delivered standout performances over the previous three trading days, driving the U.S. stock market to fully recover all losses since early April's "Liberation Day" (when the Trump administration announced aggressive global reciprocal tariffs, causing severe turmoil in financial markets worldwide).

Among the leaders of Thursday's rally, utilities, consumer staples, and real estate sectors- value sectors with relatively low valuations but stable dividend payouts- outperformed. Companies like American Water Works, Campbell Soup, and Invitation Homes Inc. saw substantial stock price increases, pushing the S&P 500 index to just 3.7% below its all-time high set in February.

Why are dividend-focused defensive strategies favored?

"The latest leading position of dividend payers indicates that some large institutional investors are still adopting a defensive investment stance, prioritizing profit scale over actual sales growth," said Frank Monkam, macro trading director at Buffalo Bayou Commodities.

Driven by bullish buying bets that Trump's proposed U.S. tariff policies will be more moderate than expected, the S&P 500 index continued its weeks-long rebound. However, the actual impact of current tariff policies on the U.S. economy and the future direction of global trade wars remain unclear.

JPMorgan Chase CEO Jamie Dimon said in an interview on Thursday that even if recent Sino-U.S. talks significantly reduce tariffs, the U.S. economy still faces the risk of a severe recession. JPMorgan's chief U.S. economist, Michael Feroli, noted in a report to clients on Tuesday that the likelihood of a U.S. recession "remains elevated but is now below 50%."

Some hedge funds suggested this week that a potential multi-year "dollar bear market" has just begun, triggered by the Trump administration's chaotic and disruptive "economic transformation actions" targeting the global trade system. In particular, the administration's erratic tariff measures have caused massive financial market turmoil, irreversibly shaking investor confidence in dollar-denominated assets.

Over the past decade, the "American exceptionalism" narrative swept the globe, with U.S. market investors enjoying the world's best returns. However, this narrative now shows major cracks. The Trump administration's recent aggressive tariff policies- either implemented or proposed- have raised concerns among investors about the risks of "stagflation" or even a "deep recession" in the U.S. economy, which is the core logic behind the recent sustained weakness in dollar assets.

The Trump administration's early April announcement of global tariffs, including a 25% levy on the automotive industry, sent all dollar assets into a steep decline, marking the gradual collapse of "American exceptionalism." Shortly afterward, Trump's threat to dismiss Powell undermined the Federal Reserve's independence, further eroding global confidence in dollar assets. Additionally, most investors bet that the resurgence of inflation due to aggressive tariffs would strain U.S. consumers, who are already grappling with persistently high inflation, leading to further spending cuts. The collapse of "American exceptionalism" has thus accelerated.

For the U.S. economy and consumer costs, the latest positive news is undoubtedly the agreement reached during the high-level Sino-U.S. trade talks in Geneva, Switzerland, where both sides announced significant tariff reductions.

According to calculations by multiple financial institutions, the latest trade consensus means that this year's new U.S. tariffs on most Chinese goods will drop sharply from 145% to 30% (20% on fentanyl + 10% reciprocal tariffs). Including tariffs imposed during Trump's first term (2018), the actual U.S. tariff rate on Chinese goods now ranges between 40% and 50%.

Moreover, despite the positive trade consensus and tariff reductions, the average U.S. tariff rate remains the highest since 1934, following the Trump administration's global tariff hikes in early April.

Winners and Losers in the S&P 500 Index

On Thursday's market, the S&P 500's consumer staples sector surged nearly 3%, real estate rose 1.8%, and utilities gained 2.1%. In contrast, the index's tech and communication services sectors fell 0.7% and 0.4%, respectively. Since bottoming out after April's steep decline, the S&P 500's "Dividend Aristocrats" index- comprising companies that have raised dividends for 25+ consecutive years- has risen about 11%, underperforming the broader market's rebound led by tech giants.

Energy stocks were among the worst performers in the S&P 500, with oilfield services providers Halliburton and Schlumberger both down nearly 1% as oil prices fell on optimism about U.S.-Iran nuclear deal prospects. Deere & Co. jumped 3.8% to a record high after reporting earnings that exceeded analysts' highest expectations, even as the world's largest farm equipment maker lowered its full-year profit guidance due to tariff policies.

The typically stable and classic defensive sector- healthcare- unexpectedly plunged, dragged down by UnitedHealth Group's 11% drop amid ongoing volatility this week. The company is under criminal investigation by the U.S. Department of Justice for alleged Medicare fraud. Steris Plc, an infection prevention products supplier, surged 8.5% after reporting better-than-expected Q4 life sciences revenue, leading the healthcare sector.

The retail sector was weak, but Foot Locker shares unexpectedly soared. Dick's Sporting Goods Inc. agreed to acquire the sneaker retailer for approximately $ 2.4 billion. FootLocker′s stock surged 86%, while Dick's Sporting Goods' shares falls 15%.