SPY Hits New Highs: Is the AI Rally Still Worth Chasing?

The S&P 500 ETF (SPY) extended its rally on August 4, 2026, climbing 1.8029% to close at 771.33, marking fresh all-time highs. This advance came amid a broad risk-on sentiment driven by a powerful surge in the technology sector, which gained nearly 5% on the day. The catalyst behind this move was a string of strong Q2 earnings reports from major tech companies, particularly those with exposure to artificial intelligence (AI) and data center growth.

Technical Setup: Key Levels and Momentum

SPY’s breakout above previous resistance levels around 760 has confirmed a bullish trend continuation. The 1.8% gain on August 4 pushed the ETF decisively above this zone, signaling strong buyer conviction. Momentum indicators remain positive, with the relative strength index (RSI) comfortably below overbought territory, suggesting room for further upside.

The immediate support level to watch is near 760, which now acts as a floor after the breakout. A pullback below this level could trigger short-term consolidation or a test of the 750 zone. Conversely, the next upside target lies around 780–785, where SPY historically encountered resistance in prior cycles.

Volume on the rally day was robust, reflecting genuine institutional participation rather than a thin, speculative move. This volume confirmation adds credibility to the breakout and reduces the risk of a false move.

Sector Leadership and Earnings Catalysts

The technology sector (XLK) led the charge with a 4.9764% gain, fueled by blockbuster earnings from Palantir Technologies and ON Semiconductor. These companies’ strong results boosted AI-related optimism, a theme that has been driving market rotations and valuations in recent months.

Among individual tech movers, Intel (INTC) stood out with a staggering 10.8352% jump. This surge was partly due to short covering after recent declines, but more importantly, Intel’s Q2 FY2026 report revealed a 59% growth in Data Center and AI revenue, underscoring its competitive positioning in the AI hardware race.

Advanced Micro Devices (AMD) also posted a 7% gain following better-than-expected Q2 earnings, although shares gave back some gains after-hours. Broadcom (AVGO) rose 6.6%, supported by strong demand for AI infrastructure and custom ASIC partnerships, as well as investor confidence in its VMware integration strategy. NVIDIA (NVDA), another AI bellwether, added 2.56%, contributing to the sector’s overall strength.

This tech-led rally was complemented by modest gains in Financials (XLF +0.87%) and Industrials (XLI +1.77%), while Healthcare (XLV -0.09%) and Energy (XLE -0.46%) lagged. The decline in energy stocks was linked to easing oil prices, which fell amid hopes for a Middle East peace deal, reducing risk premiums and encouraging investors to rotate into growth sectors.

Macroeconomic and Geopolitical Context

The broader market’s risk appetite was buoyed by the U.S. Bureau of Labor Statistics report on August 4, 2026, showing June job openings steady at 7.4 million. This stability suggests a resilient labor market without overheating, which supports a balanced economic outlook.

Meanwhile, the Federal Reserve’s decision in July to maintain the federal funds rate at 3.50%-3.75%, despite some dissenters favoring a hike, has kept borrowing costs stable for now. This pause has been welcomed by growth stocks, particularly in tech, which are sensitive to interest rate changes.

Easing geopolitical tensions in the Middle East, with hopes for a peace deal, have also reduced market volatility. The CBOE Volatility Index (VIX) has dropped 11.59% over the past week, reflecting diminished fear and encouraging investors to take on more risk.

Risks and Counterpoints

Despite the bullish momentum, some caution is warranted. Valuations in the semiconductor sector remain elevated, with AMD trading at a price-to-earnings ratio of 171x, exposing the stock to potential macroeconomic shocks or profit-taking.

Additionally, some Asian tech stocks have experienced declines as investors question whether AI spending will translate into sustainable profits. Lazard’s Peter Orzag expressed skepticism about the durability of any Middle East peace deal, which could reignite geopolitical risks.

Broadcom faces challenges outside its AI business, with revenue contraction in broadband and enterprise storage segments. Meanwhile, SpaceX shares fell after its Q2 earnings despite beating expectations, due to a doubling of capital expenditures, highlighting that not all tech-related stocks are benefiting equally.

SPY Movers and Sector Heatmap

What This Means for Traders and Investors

The current technical setup of SPY suggests a strong bullish trend with solid momentum behind it. The breakout above 760 confirms that buyers are in control, supported by positive earnings surprises and easing geopolitical risks. However, the elevated valuations in key tech stocks and mixed signals from other sectors advise a measured approach.

Investors should watch for potential pullbacks to the 760 support level as buying opportunities but remain cautious if SPY falls below this zone, which could signal a short-term correction. Monitoring the tech sector’s earnings trajectory, especially from AI-related companies, will be crucial to gauge whether this rally can sustain.

Given the complex macro backdrop, including Fed policy and geopolitical developments, diversification remains important. Traders might consider balancing exposure between growth and defensive sectors to navigate potential volatility.

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FAQ

Q1: What key technical level should SPY hold to maintain its bullish trend? The critical support level is around 760. Holding above this level confirms the breakout and bullish momentum. Falling below could trigger a short-term pullback.

Q2: Which sectors are driving SPY’s recent gains? The technology sector (XLK) is the primary driver, gaining nearly 5%, led by strong earnings from AI-focused companies. Industrials and Financials also contributed modestly, while Energy and Healthcare lagged.

Q3: How do geopolitical developments affect SPY’s outlook? Easing tensions in the Middle East have reduced risk aversion, supporting the rally. However, skepticism remains about the durability of any peace deal, which could cause volatility if the situation deteriorates.

Q4: Are there valuation concerns for the tech stocks leading the rally? Yes, some stocks like AMD trade at very high P/E ratios, making them vulnerable to macroeconomic shocks or profit-taking. Investors should be cautious and monitor earnings and broader economic signals.

Watch Point

The next key event to watch is the upcoming Q3 earnings season, which will test whether the AI-driven enthusiasm can translate into sustained revenue growth across the tech sector. Additionally, any renewed geopolitical developments in the Middle East or shifts in Federal Reserve policy could quickly alter market sentiment and SPY’s trajectory.

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