Investors are rotating back into U.S. stocks, with the fear triggered by July’s technology sell-off fading quickly and the market shifting back into buy-the-dip mode.
The S&P 500 has risen about 4% since the start of August and reached a record high this week. The Nasdaq 100 has also staged a strong rebound from its brief July correction and now stands only about 2.5% below its June high.
Easing inflation and rate-cut expectations support the rebound
Strong second-quarter earnings, cooling inflation and stronger expectations for rate cuts have been the main forces behind the latest move higher. Data showed demand for U.S. information technology stocks climbing to its highest level in nearly five years, while institutional investors increased derivatives bets tied to further gains in equity indexes.
Michael Metcalfe, head of macro strategy at State Street Global Advisors, said trading in tech stocks “currently looks unstoppable,” adding that strong earnings are reinforcing the view that AI investment is a long-term structural trend.
After U.S. inflation data softened this week, the market pared back bets on further increases in interest rates, helping push the S&P 500 above the 7,800 area. At the same time, oil prices fell from last month’s $100 high to about $88, easing investor concern over risks tied to the Middle East situation.
Major banks lift S&P 500 targets
Institutions have also raised their outlook for U.S. stocks. Citigroup lifted its S&P 500 target for the end of 2026 to 8,100, while JPMorgan Chase raised its target to 8,000 from 7,800.
AI names return to the center of the rally
The second-quarter earnings season added to investor confidence. Aggregate earnings for S&P 500 constituents rose more than 50% year over year. Even excluding investment gains from Amazon and Google parent Alphabet, earnings growth was still about 30%.
AI-linked shares have returned as the core of the rebound. Since the start of August, Super Micro Computer has gained about 37%, SanDisk is up about 33%, and cloud computing companies CoreWeave and Nebius Group have each climbed more than 40%.
Some strategists warn optimism is moving too fast
Not everyone is comfortable with the speed of the shift in sentiment. Henry Allen, a strategist at Deutsche Bank, said the market is pricing a “golden scenario”: continued economic growth, only modest central bank tightening, easing Middle East supply shocks and lower oil prices. He said that combination has “almost no margin for error.”
For now, Wall Street’s renewed momentum is being driven by AI earnings delivery, softer inflation and improving risk appetite. At the same time, stretched valuations and geopolitical risk could still become sources of volatility.