The S&P 500 (SNPINDEX: ^GSPC) index set a fresh record high last week, but it’s hard to ignore the rising tide of risks. First of all, oil prices are climbing because of the ongoing conflicts across the Middle East, triggering a spike in inflation that prompted the U.S. Federal Reserve to raise interest rates at its September meeting.
Second, cracks are starting to appear in the artificial intelligence (AI) boom. The soaring cost of chips and infrastructure is forcing labs like OpenAI and Anthropic to raise prices, so according to a recent survey by UBS Group, many businesses are now prioritizing cheaper models to save money. Any subsequent drop in demand for computing power could hurt the semiconductor stocks that have led the broader market higher for the past few years.
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These headwinds come as the S&P 500 trades at the second-highest valuation in its history, behind only the peak of the dot-com internet bubble in 2000, leaving it vulnerable to a potential crash. But the index has typically trended higher since it was established almost seven decades ago, so here’s how investors can capitalize if there is a downturn.
Rising interest rates are a big threat to the bull market
Technology stocks represent approximately 39.7% of the value of the entire S&P 500, so any disruption to the AI revolution could weigh heavily on the index. But interest rates might be a much bigger story for the overall market right now, particularly because so many technology companies are relying on debt to fund their data center infrastructure projects.
The Middle East is dealing with multiple conflicts right now, disrupting the flow of oil from major suppliers like Iran and Saudi Arabia. A single barrel of West Texas Intermediate oil was trading for around $91 last Friday (Oct. 9), significantly above its 2026 opening price of $57. As a result, the price of regular gasoline is soaring, but so is the price of diesel, which currently sells for above $6 per gallon across the United States.
That means consumers aren’t facing higher prices just at the gas pump, but also at the grocery store and at the mall, because every product that travels by truck, boat, or plane now has higher input costs. This is stoking inflation, with the Consumer Price Index (CPI) rising at an annualized rate of 3.4% in August, well above the Federal Reserve’s 2% target.
