S&P 500 near record as credit warning hits 2007 high

The S&P 500 closed at 7,745.06, down 0.52%, holding 0.7% below its record as US borrowing costs hit 2007 highs.

The credit market gauge, which tracks the premium investors demand to hold corporate debt, reached levels last seen before the global financial crisis, according to the report. The Atlanta Fed's GDPNow tool anticipates real GDP growth of 4.3% in 2026-Q3, down from 5.8% a week earlier, pointing to a slowing economy.

The S&P 500's August 13 record close of 7,798.99 marked its 27th record high of 2026, coming as rate-hike worries eased. The index fell back on Friday to end the week at 7,785.76 before Monday's decline. The US Dollar Index slipped toward two-month lows, holding below the 100.00 mark, as August's run of underwhelming data on jobs, inflation, and retail sales trimmed bets on a Federal Reserve move next month.

The divergence between record equity valuations and deteriorating credit conditions raises the risk of a market correction. If borrowing costs continue climbing toward pre-crisis levels, it could pressure corporate earnings, margin expansion, and equity valuations, potentially prompting investors to rotate out of risk assets into safer havens.

Middle East tensions have lifted oil and gold prices, adding another layer of uncertainty to the market backdrop. The S&P 500's resilience in the face of these headwinds reflects the market's focus on the Fed's potential easing path, but the credit market is telling a different story.

Credit Markets Diverge From Equities

The widening gap between equity valuations and credit market conditions suggests investors may be pricing in different scenarios. While equities have been supported by expectations of Fed easing, the credit market appears to be pricing in deteriorating fundamentals.

The last time this credit gauge was at these levels, the S&P 500 was about to enter one of its worst drawdowns in history. The 2007 comparison is particularly notable because it preceded the global financial crisis, when corporate defaults surged and credit markets seized up. The current divergence echoes that pattern, with equity investors focused on the prospect of rate cuts while credit investors signal growing stress in the corporate sector.

The Atlanta Fed's GDPNow revision from 5.8% to 4.3% in a single week underscores the pace of economic deceleration. That slowdown, combined with the credit market warning, suggests the equity market's optimism may be running ahead of the underlying fundamentals.

What's Next for the S&P 500

The S&P 500's next major test comes as investors watch for further signals from the Fed and the credit markets. The index's ability to hold above the 7,700 level will be closely watched, with the record close of 7,798.99 serving as the next resistance point.

If the credit market warning persists, it could trigger a reassessment of equity valuations across the board. The divergence between the two markets is a signal that investors should be watching closely, particularly as the Fed's September meeting approaches and the path of borrowing costs becomes clearer.

This article is for informational purposes only and does not constitute investment advice.