The S&P 500 (SNPINDEX: ^GSPC) reached a new record high last week, yet it is difficult to overlook the mounting risks. To begin with, oil prices are surging due to ongoing conflicts in the Middle East, which has fueled an Federal Reserve to increase interest rates during its September meeting.
Furthermore, the artificial intelligence (AI) boom is beginning to show signs of strain. The escalating expenses associated with infrastructure and chips are compelling labs such as OpenAI and Anthropic to increase their pricing; consequently, a recent UBS Group survey indicates that many companies are now shifting toward more affordable models to cut costs. Any resulting decline in the demand for computing power could negatively impact the semiconductor stocks that have driven the broader market’s gains over the last few years.
These challenges arrive at a time when the S&P 500 is trading at its second-highest valuation in history, surpassed only by the peak of the dot-com bubble in 2000, which leaves the index susceptible to a potential crash. Nevertheless, the index has generally trended upward since its inception nearly 70 years ago, so here is how investors might position themselves to benefit if a downturn occurs.
