S&P 500 SPY ETF (NYSEARCA:SPY) Holds $667 as AI Spending Surge Counters Weak Labor Momentum

SPY ETF Trades at $667 as Labor Market Weakens, AI CapEx Surges, and Buffett-Burry Divergence Shapes Market Outlook

The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) trades near $667.71, slipping 0.39% and hovering below its 52-week high of $689.70. Investors remain divided between optimism over massive AI-driven CapEx spending and growing caution from mixed job data, surging Treasury yields, and heightened fiscal uncertainty. The S&P 500, tracked by SPY, has advanced 8.9% year-to-date, but the last week revealed cracks in momentum as institutional investors recalibrate around labor softness and stretched valuations.

Labor Softness Undermines Sentiment Despite Job Gains Concentrated in Large Firms

October’s ADP National Employment Report showed 42,000 private-sector jobs added, surpassing the forecast of 25,000 but confirming slowing momentum in hiring. The service sector led with 33,000 jobs, while goods producers added just 9,000, underscoring structural weakness outside of tech and healthcare. Firms with over 500 employees added 73,000 jobs, while small and mid-sized businesses lost 31,000, continuing a trend of disproportionate strain on cyclical and local enterprises. The Paychex Small Business Employment Index dropped to 99.27, the lowest since 2021, signaling contraction across small employers. Following the data, SPY saw volatility as Treasury yields rose, with the 10-year yield up 3 bps to 4.56% and the 2-year climbing 2 bps, while equities erased early gains as traders weighed weak labor depth against the likelihood of monetary easing.

AI Expansion and Corporate CapEx Fuel SPY’s Core Strength Despite Macro Headwinds

While labor data reflects softening, the AI supercycle continues to drive the S&P 500’s earnings expansion and anchor SPY’s valuation support. Microsoft (NASDAQ:MSFT) raised fiscal 2026 capital expenditures to $93.5 billion, citing surging GPU and CPU demand. Amazon (NASDAQ:AMZN) expects $125 billion in 2025 CapEx, with an additional increase for 2026. Google (NASDAQ:GOOGL) projected $91–93 billion, Meta Platforms (NASDAQ:META) tightened to $70–72 billion for FY25 with “notably larger” growth for 2026, and Oracle (NYSE:ORCL) targets $35 billion, up from $21.2 billion. Together, the hyperscalers’ combined CapEx could surpass $400 billion by 2026, equivalent to 2.4% of U.S. GDP, marking one of the largest synchronized corporate investment waves in U.S. history. This unprecedented AI CapEx spending continues to buoy SPY, with the information technology sector representing 30.2% of its total weighting and driving 24% YoY EPS growth across the S&P 500.

Burry’s Shorts and Buffett’s Record Cash Hoard Reflect Diverging Market Psychology

The market split between caution and conviction has deepened. Michael Burry’s Scion Asset Management disclosed new put positions against NVIDIA (NVDA) and Palantir (PLTR), expressing skepticism toward AI valuations that have lifted SPY to near-record highs. By contrast, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) raised its cash reserves to $382 billion, the highest in history, despite 33% YoY growth in operating income. The Buffett Indicator, comparing U.S. market cap to GDP, now exceeds 190%, warning of overvaluation. Yet, liquidity conditions remain accommodative — Federal Reserve Chair Jerome Powell hinted at the potential end of quantitative tightening and acknowledged that “reserves are above the level consistent with ample conditions.” Markets now price a 55% probability of a rate cut by Q1 2026, with the Fed funds rate expected to decline from 5.25% to 4.50%, providing potential upside for rate-sensitive sectors within SPY.

SPY ETF Structure, Performance, and Technical Outlook

The SPDR S&P 500 ETF Trust holds a $601.3 billion market cap with a 0.09% expense ratio, tracking 500 of the largest U.S. equities. Year-to-date, the ETF has delivered 9.2% total returns, with a five-year CAGR of 11.8% and a 1.36% dividend yield. SPY’s top holdings — Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Amazon (AMZN), and Meta (META) — account for 27% of total assets, linking the ETF tightly to tech and AI themes. Over the past year, SPY traded between $481.81 and $689.70, with a recent dip to $661.21 marking a 4.1% correction from its October highs. The 50-day moving average near $672 acts as short-term resistance, while support lies at $660. A breakout above $680 could propel a test of $700, contingent on softer yields and continued corporate earnings resilience.

Macro Environment: Shutdown, Inflation Rebound, and Policy Uncertainty Weigh on SPY

The prolonged U.S. government shutdown, now over five weeks, has delayed official BLS data and contributed to reliance on private datasets like ADP and Paychex. Inflation signals remain mixed, with the ISM Services Prices Index surging to a three-year high, challenging the Fed’s disinflation narrative. Simultaneously, political uncertainty escalated after Donald Trump floated export restrictions on NVIDIA’s GB300 and B300 AI chips, potentially impacting semiconductor supply chains central to SPY’s portfolio. However, markets view such threats as temporary posturing, with no immediate impact on corporate guidance.

Valuation and Sector Distribution Keep SPY Supported but Vulnerable to Repricing

The S&P 500’s forward P/E ratio stands at 21.2x, exceeding the 10-year average of 18.4x, signaling mild overvaluation. High-concentration sectors — particularly tech and communication services — trade at 27–30x, while cyclicals like financials and materials remain under 12x. The valuation skew suggests rotation risk: if macro easing lifts cyclicals, SPY could see broadening support beyond tech dominance. Current forecasts imply S&P 500 EPS growth of 10% in 2026, consistent with a fair-value range near $700–$720 for SPY, assuming inflation stabilizes and yields retreat below 4.25%.

Investment Verdict: HOLD — Structural Bull Case Intact, Short-Term Risks Elevated

At $667, the NYSEARCA:SPY reflects a market torn between slowing macro momentum and accelerating AI-driven corporate expansion. Labor softening points to slower consumption but also raises the likelihood of Fed easing — a historically bullish setup for equities. Yet, rich valuations and concentrated leadership warrant tactical caution. Investors should maintain core exposure, accumulate near $650–$660, and trim positions above $680–$685. The long-term structural case remains bullish, supported by AI CapEx, corporate earnings power, and impending monetary relief. Verdict: HOLD — accumulate on dips; long-term fair value $700–$720 by mid-2026.

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