Rare event could derail S&P 500 record-setting rally originally appeared on TheStreet.

The stock market has had a record-setting run following President Trump's decision to pause reciprocal tariffs on April 9.

The move to de-escalate trade tensions reversed a brutal selloff in the S&P 500 that at its worst had sent the benchmark index tumbling 19%, nearly into bear market drop territory.

The market decline was severe enough to trigger oversold readings on most sentiment measures, and many market watchers were savvy enough to recommend buying into the fear. However, far fewer likely expected the rally to persist amid a tidal wave of economic concerns and global uncertainty.

Yet, that's precisely what the S&P 500 has done.

Rather than backfill gains, it has essentially beelined higher, creating a V-shaped bottom that has surprised many who remain with cash on the sidelines watching, hoping for a chance to buy.

The index's advance is remarkable, but stocks don't rise or fall in a straight line, and mounting evidence suggests that the S&P rally could stall soon, especially after one particularly rare signal flashed on Friday.

A raging bull market lifted the S&P 500 by over 20% in back-to-back years in 2023 and 2024, including a robust 24% gain last year.

The gains were fueled by optimism that the Federal Reserve would switch to market-friendly interest rate cuts, thanks to falling inflation, and abandon the hawkish monetary policy it adopted in 2022 in its war against inflation.

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A tsunami of artificial intelligence spending also supported gains as companies raced to develop AI chatbots and agentic AI apps.

Those bullish arguments looked much flimsier this spring.

The Fed cut interest rates in September, November, and December last year; however, it paused additional reductions this year because it feared tariffs would spark price increases.

In May, Personal Consumption Expenditures (PCE) price index, excluding energy and food because of their volatility, showed inflation was 2.7%, up from 2.6% in April, and over the Fed's 2% inflation target.

The Fed's pause removed some excitement that lower rates would spark business investment and lower interest expenses on variable debt—bad news for corporate sales and earnings growth that contributes to higher stock prices.

Similarly, earlier this year, fears mounted that major hyperscalers, including Amazon's AWS, Meta Platforms, Google Cloud, and Microsoft's Azure, would pare back AI spending on servers and AI chips after two years of huge spending growth.