Here's what I'm looking at premarket

What could drive SPY to all time highs 🤔

May 20, 2025

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Here comes SPY yet again on a great recovery from yesterday’s bearish PRE market drop on a US credit rating drop. Fast forward 24 hours and SPY is pushing right back into the mid $590s and we are near the all time highs yet again.

So what could drive us to or even PAST the all time highs?

Here are a few reasons why we might not be that far off…

1. Federal Reserve Policy Shift (Lower Rates or Dovish Stance)

  • If the Federal Reserve signals or enacts rate cuts, it lowers borrowing costs and boosts liquidity.

  • Lower rates typically increase equity valuations (especially growth stocks) via lower discount rates on future cash flows.

2. Strong Corporate Earnings

  • Broad-based earnings growth, especially from large-cap tech companies (e.g., AAPL, MSFT, NVDA, AMZN), can pull the entire index higher.

  • Margin expansion, cost-cutting, and productivity gains (e.g., through AI adoption) are key tailwinds.

3. Economic Resilience / Soft Landing

  • Signs of continued economic growth without triggering high inflation (a “soft landing”) give investors confidence.

  • Strong consumer spending, stable labor markets, and improving productivity help support this.

4. AI and Tech Innovation Boom

  • If the AI sector continues to outperform, driven by both hype and real productivity gains, it can lift the entire index.

  • Tech is the largest sector in the S&P 500; strength here disproportionately impacts SPY.

5. Inflation Cooling

  • Continued declines in inflation metrics (CPI, PCE) can improve investor sentiment and lead to Fed easing.

  • This also helps consumer confidence and corporate margins.

6. Global Stability or Positive Geopolitical Developments

  • De-escalation of major geopolitical risks (e.g., Ukraine, Middle East, U.S.-China tensions) can reduce the risk premium embedded in markets.

7. Liquidity and Fund Flows

  • Renewed inflows into equities—from retail, institutional, and passive funds—can drive prices higher.

  • A "risk-on" environment (where investors are willing to take more risk) typically supports equity rallies.

8. Technical Momentum

  • If SPY breaks above resistance levels or previous highs, technical traders and algos may chase the breakout, adding to upward momentum.

If several of these factors align—especially a dovish Fed, continued earnings strength, and cooling inflation—SPY could very realistically reach and sustain new all-time highs.

That being said, I am still very bullish on SPY and will continue to look for SPY calls for my Market Navigator trade of the day.

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