S&P, Nasdaq scale new highs: Factors behind the rally, and how can Indian investors tap US markets

The S&P 500 closed higher on Wednesday, ending the day at 6,532, rising 19 points or 0.3%. The index reached an intraday high of 6,556, just below its 52-week peak, reflecting ongoing investor confidence in U.S. equities. Strong liquidity and resilience in technology and growth stocks continue to push gains, helping the benchmark index stay near record levels.

Sathvik Vishwanath, Co-founder and CEO of Unocoin, said, "The S&P 500 and Nasdaq have surged to fresh highs, driven by robust corporate earnings, easing inflation concerns, and optimism around potential Fed rate cuts. Tech and consumer discretionary sectors are leading the rally, supported by strong consumer demand and renewed investor confidence."

In contrast, the Dow Jones declined, closing at 45,491, down 220 points or 0.48%. The index resisted throughout the session, weighed down by losses in cyclical and industrial stocks. Despite this decline, the Dow remains close to its 52-week high of 45,770, indicating that broader sentiment around the US economy remains relatively positive.

Together, the moves highlight the diverging performance between growth-heavy indices, such as the S&P 500 and Nasdaq, which are finding support from investor optimism in technology, and the Dow, which is reflecting caution around traditional sectors amid concerns about a potential slowdown.

Although by the session end, most of the up-move was gone, with Oracle and artificial intelligence-linked stocks notching the most significant gains.

What is driving the rally

The rally was primarily driven by Oracle shares, which skyrocketed on Wednesday, closing at $328, representing a massive 35.95% increase of $87 in a single session. The stock opened at $320 and touched an intraday high of $346, just shy of its new 52-week peak.

The rally was driven by strong investor enthusiasm, likely fuelled by robust earnings and optimism surrounding the company’s cloud and AI-related businesses, as mentioned above. With a market capitalisation now at over $922 billion, Oracle has emerged as one of the top gainers on Wall Street.

"Despite concerns about a US slowdown, liquidity in American markets has remained strong, which is why indices like the S&P 500 and Nasdaq are trading near record highs,” said Kranthi Bathini, Equity Strategist at WealthMills Securities Pvt Ltd.

Parth Srivastava, Head of Quant, 9Point Capital’s Research Team, says the following factors are powering the rally.

• Easing inflation: Recent producer and consumer price data came in softer than expected, reducing pressure on the Federal Reserve to tighten policy aggressively.

• Rate-cut expectations: Markets are now pricing in possible Fed rate cuts, boosting growth and tech stocks.

• Strong corporate earnings: Tech and AI-driven companies, particularly cloud and software majors, delivered robust guidance and earnings, boosting sentiment.

• Falling bond yields: Lower Treasury yields make equities relatively more attractive, fueling further inflows into risk assets.

• Broader participation: Market breadth has improved, with gains spreading beyond mega-cap tech names, adding strength to the rally, per Srivastava.

Moreover, Fed Governor Lisa Cook is expected to participate in the Fed rate decision next week, following a judge's ruling to prevent President Trump from removing her amid allegations of mortgage fraud. Trump has targeted Cook in his efforts to lower interest rates.

On the trade front, Trump has reportedly urged the EU to join the US in imposing new 100% tariffs on India and China. The tariff hikes are aimed at encouraging Russia, particularly President Putin, to engage in talks over the Ukraine conflict. Tensions in the region are escalating following a NATO member, Poland, shooting down Russian drones that had entered its airspace.

What you should do

Analysts suggest that for Indian investors, overseas investments are more convenient for those with larger portfolios; however, even small investors should consider some level of diversification. In practice, high-net-worth individuals (HNIs) have been at the forefront of such investments.

"For Indian investors eyeing global diversification, US markets offer attractive avenues through ETFs like SPY, QQQ, and fund-of-funds that pool assets across sectors. Over the past year, ETFs tracking the Nasdaq-100 and S&P 500 delivered returns between 18–28%, outperforming many domestic benchmarks. Investing via ETFs or fund-of-funds ensures exposure to a broad market while managing risk, making them ideal for long-term growth and portfolio diversification," said Vishwanath.

“Indian markets also have strong long-term growth prospects and often outperform over longer horizons. In the short to medium term, however, there has been a rising interest in US-focused investment avenues, such as exchange-traded funds (ETFs) and funds of funds,” said Bathini.

According to analysts, some of the key ETFs and Fund of Funds (FoFs) to consider for exposure include Mirae Asset NYSE FANG+ ETF, Motilal Oswal S&P 500 Index Fund, Nippon India ETF Hang Seng BeES, ICICI Prudential NASDAQ 100 ETF, Kotak NASDAQ 100 FoF, and DSP World Gold FoF.

Bathini said that ultimately, the choice depends on each investor’s asset allocation strategy between India and the US. “Still, ETFs remain one of the most effective ways to diversify internationally, especially into US markets," he said.