# S&P 500 slides 1.5% as AI spending doubts rise, Fed hike odds jump

**Published:** 2026-06-26T19:21:07.549Z  
**Topic:** S P 500  
**Sentiment:** neutral  
**Publisher:** TrendWatcher — https://www.trendwatcher.in/article/a213cc80-3088-47de-ab29-ed9245732232

S&P 500 fell 1.5% and semiconductor index dropped 8% amid growing concerns over AI spending and a Fed rate‑hike probability rise to 70%; see the numbers and

The S&P 500 slipped 1.5% on Tuesday, while the semiconductor sub‑index plunged 8% as investors reassessed whether massive AI‑infrastructure spending will translate into profits and as market pricing for a September Fed rate hike rose to about 70% [1].

| At a glance | |
|---|---|
| S&P 500 change | –1.5% |
| Semiconductor index change | –8% |
| Fed September‑rate‑hike probability | 70% (up from 36% last week) |
| Oil price move | –2% to a four‑month low |

## AI spending under scrutiny

The sell‑off follows a two‑day plunge that saw tech stocks bleed, with the broader market questioning the AI trade that has buoyed equities for most of the year. Analysts point to the “valuation reset” narrative, noting that AI‑related companies are trading at historically lofty multiples—SpaceX at 93 × sales, OpenAI at 35 ×, and Anthropic at 21 ×—levels comparable to the peaks of past bubbles [2]. The Warren Buffett Indicator, a broad market‑valuation gauge, is at an all‑time high, and overall U.S. equity valuations are near 1999 levels, underscoring the disconnect between hype and fundamentals [2].

## Market reaction and earnings focus

The immediate market reaction was mixed. While the S&P 500 fell, the dollar rose to a 13‑month high on safe‑haven demand, and the euro slipped below the 1.1350 yearly low [1]. Oil prices dropped 2% to a four‑month trough as shipping through the Strait of Hormuz resumed, easing supply concerns [1]. Investors now look to Micron Technology’s earnings after the close; the chipmaker, a key AI supplier, is expected to post $33.5 billion in revenue and an 81% gross margin, with its stock up roughly 370% year‑to‑date despite a recent 13% dip [1].

## Valuation debate and broader implications

Manoj Bahety of Carnelian argues that the AI frenzy has entered a “FOMO” stage, where investors chase inflated price tags rather than solid return‑on‑invested‑capital metrics [2]. He warns that the concentration of AI exposure—U.S. tech names account for about a third of the S&P 500, and TSMC alone makes up over 40% of Taiwan’s market—means a slowdown could reverberate across multiple geographies [2]. The current environment mirrors previous cycles where large IPOs clustered at market peaks and later fell 70‑95% [2].

## What to watch
- U.S. Core PCE data due tomorrow, a key gauge for Fed policy direction.  
- Micron Technology earnings after market close; a miss could deepen the AI‑spending reassessment.  
- The 50‑day SMA around 7,350 on the S&P 500; a break below may open the path toward 7,200‑7,000 levels.

The S&P’s drop highlights a pivotal moment: if AI spending fails to meet lofty expectations, the sector’s lofty valuations could face a sharper correction, testing whether the market’s recent rally was driven by fundamentals or by a speculative AI bubble.

## Sources
1. Investing — [S&P 500 Rebound Tests Whether AI Sell-Off Is Only a Valuation Reset | Investing.com](https://www.investing.com/analysis/sp-500-rebound-tests-whether-ai-selloff-is-only-a-valuation-reset-200682713)
2. Economictimes — [ETMarkets Smart Talk | AI is real, but AI valuations are not; we are in the FOMO stage of the bubble: Carnelian’s Manoj Bahety - The Economic Times](https://economictimes.indiatimes.com/markets/expert-view/etmarkets-smart-talk-ai-is-real-but-ai-valuations-are-not-we-are-in-the-fomo-stage-of-the-bubble-carnelians-manoj-bahety/articleshow/131820373.cms)

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Cite as: TrendWatcher, "S&P 500 slides 1.5% as AI spending doubts rise, Fed hike odds jump", https://www.trendwatcher.in/article/a213cc80-3088-47de-ab29-ed9245732232