Wall Street’s risk trade came back hard in August, with U.S. stocks rebounding and speculative positioning picking up again as investors returned to technology shares, leveraged exchange-traded funds, and bullish options bets.
According to the report by Wallstreetcn cited by MarsBit, the S&P 500 is up about 4% month to date and touched a record above 7,800 this week. The Nasdaq 100, which had briefly slipped into a technical correction earlier, is now only 2.5% below its June high. Citigroup and JPMorgan both raised their year-end 2026 targets for the S&P 500 this week, reinforcing the renewed bullish tone.
The rebound followed a sharp sell-off in chip stocks in July, but fear faded quickly. State Street custody data tracking more than $50 trillion in institutional money showed demand for U.S. information technology shares rebounded to a five-year high over the past month. At the same time, leveraged ETFs and call options have regained popularity, with both retail and institutional investors adding risk exposure.
That quick return to bullish positioning has also triggered warnings from some analysts. The report said the market is now pricing a near-perfect combination of favorable outcomes, with little room for mistakes.
Earnings drive the rebound as banks lift S&P 500 targets
The main engine behind the rally has been an exceptionally strong earnings season. Second-quarter earnings for S&P 500 companies rose more than 50% from a year earlier. Excluding investment gains from Amazon and Alphabet, earnings still increased by about 30%.
Citigroup’s head of U.S. equity strategy, Scott Chronert, raised his year-end target for the S&P 500 to 8,100 this week, saying, 「this magnitude of upside surprise is something you rarely, if ever, see.」 JPMorgan global market strategist Dubravko Lakos-Bujas wrote in a client note that U.S. equities still show a 「strong earnings picture that is broadly distributed across sectors,」 and that results from some mega-cap cloud computing companies point to early signs that massive AI investment is starting to generate returns. JPMorgan lifted its year-end target from 7,800 to 8,000, implying a 16.5% gain for the index this year.
Charles Schwab head of macro research and strategy Kevin Gordon said, 「as far as the degree to which tech can drive the index, this is the new normal.」 Analysts have also noted that earnings growth is spreading into other parts of the economy, which the report described as a healthier sign for the durability of the bull market.
Chip stocks and leveraged trades rebound together
The strongest rebound came from areas that were hit hardest in July. Super Micro Computer has gained about 38% so far in August, memory company Sandisk is up more than 33%, and cloud computing firms CoreWeave and Nebius have each climbed more than 40% over the past two weeks. Micron and Intel have both added about 15%.
Leveraged ETF activity has also picked up. Bloomberg Intelligence data showed leveraged index funds have created nearly $50 billion in wealth this year, while single-stock leveraged funds have lost about $4 billion over the same period. The contrast points to a clear divide: broad leveraged strategies tied to an ongoing market rebound have outperformed, while attempts to amplify gains in individual hot stocks have suffered heavy losses.
Bloomberg Intelligence ETF analyst James Seyffart said, 「single-stock products carry higher risk and volatility, and investors can get burned more easily. But the space is so new, new products are launching almost every day, and people just keep buying them.」
Among the most popular products, the $25 billion Direxion Daily Semiconductor Bull 3X ETF drew the most inflows even though it fell about 20% over the past month. The Direxion Daily TSLA Bull 2X ETF, despite losing more than 50% this year, was also among the leaders in inflows. EP Wealth Advisors chief investment officer Adam Phillips said retail investors have recently shown a pattern of 「disciplined buying」 during volatility and, 「to some extent, they’ve become the smart money.」
Cooling inflation and weaker data trim rate hike expectations
Macro conditions added support to the rally through a set of softer-than-expected inflation readings. U.S. July CPI rose about 3.4% from a year earlier, with core inflation continuing to ease. July PPI was flat month over month and came in below expectations. July retail sales fell 0.6% from the previous month, the largest drop in more than a year.
Those numbers led traders to cut bets on another Federal Reserve rate hike, with the probability of a September increase dropping from 75% at the end of July to around 25%. The U.S. dollar index then fell to a three-month low, erasing all of the gains tied to the hawkish path associated with Fed Chair Warsh since he took office.
State Street macro strategist Michael Metcalfe said the U.S. technology trade is 「bulletproof, at least for now.」 He added, 「with geopolitics and economic noise in the background, earnings are still this strong, and that reinforces one view: this is a structural trade, not a cyclical one.」
Options markets show hedging demand has faded
Derivatives data also reflected the shift in sentiment. According to Cboe data, the S&P 500 Skew Index, which measures the relative cost of downside protection versus upside exposure, fell to a one-year low in early August. Cboe head of derivatives market intelligence Mandy Xu said investors 「sold hedges and switched into call options to chase the rebound.」
The VIX fear gauge has also declined for a fourth straight week, even with oil surging, tensions around Iran still elevated, and long-term Treasury yields holding high levels. The report said that sends a clear message: the market believes almost every bearish headline now carries its own bullish offset. Weak employment means the Fed will not hike. Slower consumption means the Fed will not hike. Higher oil prices are seen as temporary. AI-driven earnings are expected to outweigh the rest.
Oil and long bonds challenge the Goldilocks narrative
Still, the gap between asset prices is widening. Oil rose about 6% this week, with Brent crude nearing $90 a barrel. The report said stalled talks around the Strait of Hormuz and U.S. threats to intensify sanctions were the main drivers.
At the same time, long-dated U.S. Treasury yields kept climbing. This week’s 30-year Treasury auction cleared at the highest yield in 25 years, while the 10-year auction also came at historically elevated levels. Short-term rates moved lower as expectations for further Fed tightening faded, but the long end kept rising, pushing the term premium higher and steepening the yield curve.
That combination suggests markets may believe the Fed is close to the end of its hiking cycle, but they do not fully believe inflation is over.
Strategists warn the market is priced for very little error
Deutsche Bank macro strategist Henry Allen warned that 「the market is pricing a golden age combination: growth remains strong, central bank tightening is limited, supply shocks prove temporary, and oil prices fall back again.」 He added, 「that leaves almost no room for error. It is hard to imagine all of those benign conditions holding at the same time.」
Janus Henderson Investors head of multi-asset macro investing Michael Contopoulos also said that while strong fundamentals justify an overweight in equities, 「chasing crowded and expensive parts of the market is a huge risk, and we would avoid that.」
The report said a contest is now forming between the stock market’s Goldilocks view and the bearish stance in long-duration Treasuries. Equities are betting on a soft landing and a supercycle in AI earnings, while the long end of the bond market is pricing fiscal deficits and supply pressure. Both cannot be right at the same time. Which side wins could become one of the most important market themes in the second half of 2026.