Doubts about AI profits, an oil surge, and a storm in the bond market — not the most obvious backdrop for a fresh S&P 500 record. But look at the political calendar, and the timing starts to make sense.

The market is split between bulls and bears, each clinging to different data. Sellers point to the jump in energy prices that threatens to lock in higher inflation and pricier borrowing. Buyers lean on stats showing continued AI-driven growth.

Semiconductor index dynamics

A negative for the S&P 500 was the sell-off in chipmakers after reports suggested ChatGPT creator OpenAI's annual revenue may fall short of prior estimates. Oil spiked but cooled quickly after US President Donald Trump said the US would not strike Iran before the midterms. Long-term bond issuance rose, while yields eased following strong demand at a 30-year auction.

Sources familiar with the situation say OpenAI is moving toward roughly $50 billion in annual revenue, though some outlets had earlier cited a figure closer to $70 billion. Insatiable AI demand lifted chipmakers from this year's lows, but volatility returned as concerns grew that the investment boom is being financed with rising debt.

Investors are skeptical about how long massive AI spending can be sustained as borrowing costs climb. UBS views AI investment as a tailwind for the market, but the concentration of gains increases the value of a diversified portfolio, while it remains unclear how profits will be split among chipmakers, cloud platforms, and model creators.

Market reaction to elections

The political calendar provides support. The fourth quarter of a midterm year has historically been one of the best periods for the S&P 500. Since 1950, the index's average return over such quarters has annualized to roughly 29%. Investors like the political certainty the calendar brings more than Washington gridlock. Research in the Journal of Financial Economics, covering 145 years, found that the US equity premium in the five months after midterms was, on average, nearly five times the typical level.

A stark warning comes from Panmure Liberum: the AI trade could unravel as soon as 2027–28, when hyperscalers' cash flows dry up like a river in drought and debt becomes unsustainable. Their 5,000 S&P 500 year?end 2027 target, implying a 36% drop, is the most bearish forecast Bloomberg tracks.

Will the seasonal tailwind push the market higher before an AI bubble bursts?

Technically, the daily chart shows that a breakout of the pin-bar high near 8,000 would be a buy signal for the S&P 500.