Key Points
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Americans are feeling pessimistic about the economy, with consumer sentiment hitting a new low.
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Meanwhile, major market indexes are reaching all-time highs.
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Even if volatility is looming, history offers promising news.
Millions of Americans are feeling the pinch of higher costs — to the point that the level of food insecurity in the U.S. is higher now than at the height of the COVID-19 pandemic, when millions of workers were unemployed, a new survey from the Federal Reserve Bank of New York found.
Consumer sentiment also hit a new low in May. The University of Michigan Consumer Sentiment Index, which measures consumers’ economic outlook, dropped to its lowest point ever — lower than during the Great Recession, the pandemic, and the 2022 bear market.
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Typically, economic pessimism goes hand in hand with a declining stock market. Right now, though, the S&P 500(SNPINDEX: ^GSPC) is reaching record high after record high with no signs of slowing down. This disconnect is unusual, and while nobody can predict exactly where the market is headed, history can offer some reassuring news for investors.
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Explosive tech stocks are leading the market’s rally
Much of the market’s growth over the past few years can be attributed to the technology sector’s monumental returns.
Semiconductor stocks Nvidia and Micron Technology have seen massive gains, earning total returns of around 465% and 1,420%, respectively, over the past three years alone. Tech has dominated so much that the “Magnificent Seven” — consisting of Nvidia, Apple, Microsoft, Amazon,Alphabet, Meta Platforms, and Tesla — account for around 35% of the S&P 500’s overall value, as of May 2026.
SpaceX, OpenAI, and Anthropic are also planning to join the stock market with initial public offerings slated for later this year, so it doesn’t appear that the tech boom is slowing down just yet. With so much investor excitement around this industry, the S&P 500 may continue to reach new heights even if the economy is on a different page.
Will this lead to a recession in 2026?
Many investors are worried we’re in an AI bubble, drawing parallels to the dot-com bubble and subsequent bear market in the early 2000s. But the market landscape is much different now than it was two decades ago, and trying to predict where prices are headed can be risky.
If history shows us anything, it’s that the market is unstoppable with enough time. Even if we face another dot-com-like bubble burst, staying in the market for the long haul is the most effective way to protect your portfolio.
For example, say you were investing in an S&P 500 index fund in early 2000 — just before major indexes started descending into a bear market. By the time the S&P 500 recovered from the dot-com bubble and began reaching new highs, the Great Recession had begun.
However, despite facing back-to-back bear markets, the S&P 500 surged by more than 224% after 20 years. By today, the index has earned total returns of more than 740%.
In other words, if you’d invested $10,000 in an S&P 500 index fund in January 2000, you’d have around $84,000 by today — even if you didn’t make any additional contributions in that time.
Nobody can say exactly where the market is headed in the near term. But even if we do face a downturn in the coming months or years, buying and holding quality stocks is key to building long-term wealth despite volatility.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Micron Technology, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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