S&P 500 hits 7,600 as options bets signal frothy market

Investors are piling into bullish call options at a pace that has pushed a key sentiment gauge to its lowest level in more than four years, adding to signs the equity rally may be overheating.

The S&P 500 rose 0.26% to a record close of 7,599.96 on Monday, its 23rd all-time high of 2026, as technology stocks powered the index higher even as most sectors fell. The Nasdaq Composite gained 0.42% to 27,086.81 and the Dow Jones Industrial Average edged up 0.09% to 51,078.88, both also closing at fresh records.

"The put-call ratio is historically extremely low," said Mark Arbeter, president of Arbeter Investments. The five-day moving average of the Cboe equity-only put-to-call ratio fell to 0.452 on Friday, its lowest since March 30, 2022, according to Dow Jones Market Data. The reading means demand for bullish call options has been more than twice as great as demand for bearish puts. The 21-day moving average dropped to 0.493, the lowest since Dec. 9, 2021, when it stood at 0.490.

The S&P 500's information-technology sector surged 2.48% on Monday, buoying the benchmark even as nine of the 11 GICS sectors finished lower. Energy was the only other sector to close in positive territory, rising 1.86% as oil prices climbed after Iran reportedly halted peace talks with the U.S. and threatened to block the Strait of Hormuz. WTI crude settled at $92.46 a barrel, while Brent crude rose 4.2% to $94.98. The U.S. 10-year Treasury yield climbed to 4.458%, up from 4.45% on Friday, as a manufacturing report showed growth accelerated more than expected.

The narrow leadership has pushed concentration risk to extreme levels. The top 10 stocks now control nearly half of the S&P 500's total market value, a 40-year high, according to Stifel equity market strategist Thomas Carroll. Nvidia rose 6.2% after CEO Jensen Huang announced product updates at a conference, while ServiceNow jumped about 9% on upbeat analyst commentary. IBM surged roughly 9% after a bullish analyst initiation, and Marvell Technology notched an all-time high.

The VIX closed at 16.05, up 4.77%, reflecting some hedging demand even as equities rallied. Mandy Xu, head of derivatives-market intelligence at Cboe, noted that single-stock volatility as measured by the VIXEQ Index was nearing a one-year high last week, with its spread relative to the VIX widening to a record — a sign that dispersion within the stock market has risen to extreme levels as AI-linked stocks drive most of the S&P 500's gains.

Arbeter cautioned that similar put-call ratio readings preceded the 2022 bear market and the first countertrend rally within it. While not a direct sell signal, the frothy options positioning suggests investors should proceed with caution. The next catalyst for direction could come from further developments in U.S.-Iran negotiations, with President Donald Trump indicating Monday that "talks are continuing, at a rapid pace."

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