Slow and steady wins the race. But sometimes calm is deceptive, and a quick look beneath the surface reveals how fiercely traders are moving. That was the character of US equities on Tuesday: the Nasdaq 100 posted its best day in three weeks, and a rebound in chipmakers overshadowed a renewed US-Iran escalation. Geopolitics fell back to second place the moment tech reminded markets of its presence.

The S&P 500 closed roughly 1% higher, even though advancers and decliners were almost evenly split. Nine of 11 sectors finished in the green, led by technology. The weakest sectors were consumer staples and materials. Recent weakness in chipmakers had been driven by fears that new Chinese entrants in the AI arena could upset the competitive landscape. Investors were also uneasy that, despite attractive business metrics, sector valuations remained elevated.

Still, the market believes that external competition does not negate the need for companies to invest billions in AI infrastructure. This looks more like a hiccup in a long capex cycle than its end. Yet a crowd that buys every dip risks losing the forest for the trees, ignoring inflationary forces that will, sooner or later, compress valuations.

S&P 500 reaction to economic news

A strong economic impulse is a double-edged sword: it supports corporate profits but can become a curse if the economy overheats. Citi's economic surprise index above 40 points historically preceded S&P 500 declines that took about three months, on average, to recover. The combination of a Fed battling inflation, geopolitical tension and an interpreting market creates a "good news = bad news" environment.

Investors are getting pickier about AI-linked companies even after robust reports, although profit growth still underpins longer-term optimism. While the market skates across calm waters, changing course from time to time, few are positioned for a shock scenario — concerns are concentrated in specific names and sectors.

S&P 500 performance relative to most stocks

This year, there have already been 52 trading days when the index moved in one direction, while the majority of its constituents moved in the opposite — the third-highest tally of the century after the early 2000s, and 2026 is on track to set a new record. A similar pattern appeared during 2023–2024 when tech was effectively the only game in town. Today, the picture has shifted.

Alphabet is first among the hyperscalers to report this week, followed by IBM, Intel, and Tesla. The market will likely keep skating on the surface. The question is how long it can keep rowing without being noticed.

Technically, the daily chart shows that the S&P 500 has regained some footing. A breakout above fair value at 7,540 would be a buy signal.