The S&P 500 looked to the Fed for signals, but in practice, the market reacted more to its favorite theme, artificial intelligence. Tech giant earnings had a bigger impact on equities than the Fed's decision to hold, two dissents on the FOMC, or Kevin Warsh's comments on the economy and inflation.

Stock index dynamics

Rotation is in full swing, and it is happening not only between mega-caps and small caps but within the tech sector itself. Investors are scrutinizing whether S&P 500 issuers can still generate profits. Expectations are so high that beating them is difficult, which has become a reason to sell.

A telling example is Microsoft versus Alphabet. Since the last quarterly cycle, Microsoft shares have jumped by 35%, while Alphabet is down roughly 5%. Q3 results amplified that divergence: Microsoft's EPS rose from $3.72 to $4.92 year-over-year, beating Wall Street and sending the stock up about 4% in after-hours trading. Alphabet, by contrast, plunged by 10% after top-line results disappointed, marking a one-day market-cap loss of roughly $300 billion, one of the largest ever.

Nasdaq 100, Microsoft, Alphabet dynamics

The S&P 500 also got a lift from an 11% rally in Oracle after an upbeat free-cash-flow outlook and from Kevin Warsh's comments that the economy can grow without reigniting inflation — a view tied to productivity gains from AI.

At the same time, big tech is sensitive to higher rates because these firms increasingly use borrowed capital. An overly aggressive Fed tightening could trigger both an AI bubble burst and a meaningful GDP slowdown — an outcome the central bank is unlikely to accept. So very high rates remain unlikely, and that's constructive for US stocks.

Two-year Treasury yields actually fell on Warsh's speech, and oil pulled back from six-month highs on reports of diplomatic progress in the Middle East. The White House has reportedly warned hard-line Iranian figures, and intermediaries are intensifying efforts to bring Washington and Tehran back to the negotiating table.

All told, despite problems at some tech giants, a slowdown in Fed tightening and solid Q3 US growth create a Goldilocks backdrop for equities.

Technically, the daily chart shows that the S&P 500 broke above fair value at 7,725, which supported adding long positions. As long as the price remains above that important level, the bias favors buying.