In August, Wall Street's "bull market" has returned, and so has the "gambling nature."

Author: Wall Street Watch

U.S. stocks rebounded strongly in August, with the S&P 500 index reaching a new all-time high as investors returned to technology and leveraged sectors. Strong corporate earnings and cooling inflation provided fuel, but soaring oil prices, high long-term bond yields, and conflicting cross-asset signals made this "golden age" trade increasingly fragile.

After a severe sell-off in chip stocks in July, market fear came quickly and left just as fast. The S&P 500 index has risen about 4% so far this month, reaching above the historical high of 7800 points this week; the Nasdaq 100 index, which briefly fell into a technical adjustment, is now only 2.5% away from its June peak. This week, both Citigroup and JPMorgan raised their year-end targets for the S&P 500 index for 2026, underscoring the recent bullish sentiment.

Funds continue to pour in. According to State Street Bank's custody data tracking over $50 trillion in institutional funds, demand for U.S. information technology stocks has rebounded to a five-year high over the past month. Meanwhile, speculative tools like leveraged ETFs and call options are regaining popularity, with both retail and institutional investors increasing their risk exposure.

However, the rapid return of bullish bets has also raised alarms among some analysts— the "everything is great" scenario currently priced in by the market leaves almost no room for error.

Earnings Season Provides Engine, Citigroup and JPMorgan Raise Targets

The core driving force behind this rebound is an earnings season described by analysts as "incredible."

S&P 500 constituent companies saw a year-on-year earnings growth of over 50% in the second quarter, with an increase of about 30% after excluding investment gains from Amazon and Alphabet, which is still strong. Citigroup's U.S. equity strategy chief Scott Chronert raised the year-end target to 8100 points this week, stating, "This level of surprise is something you rarely, if ever, see." JPMorgan's global market strategy chief Dubravko Lakos-Bujas wrote in a client report that U.S. stocks' "earnings picture remains strong and broadly distributed across sectors," with some large cloud computing companies showing early signs of monetizing their massive AI investments. The bank raised its year-end target for the S&P 500 from 7800 to 8000 points, implying a 16.5% increase for the index this year.

Kevin Gordon, head of macro research and strategy at Charles Schwab, stated, "In terms of how much the tech sector can influence the index, this is the new normal." Nevertheless, analysts also noted that earnings growth is spreading to other sectors of the economy, which is seen as a healthy sign for the continuation of the bull market.

Chips and Leveraged Sectors Both Strongly Rebound

Leading the rebound are the sectors that suffered the most in July.

Super Micro Computer has risen about 38% so far in August, memory company Sandisk is up over 33%, and cloud computing firms CoreWeave and Nebius have each risen over 40% in the past two weeks; Micron and Intel have also both increased by about 15%.

The leveraged ETF market has also seen a significant return to "gambling." According to Bloomberg Industry Research data, leveraged index funds have created nearly $50 billion in wealth this year, while single-stock leveraged funds have evaporated about $4 billion during the same period. This stark contrast reveals a harsh reality: broad-based leveraged strategies betting on a continued rebound have outperformed, while strategies attempting to amplify single popular stock gains have been severely hit.

Bloomberg Industry Research ETF analyst James Seyffart pointed out:

"Single-stock products carry higher risks and volatility, making it easier for investors to get burned. But this field is too new, with new products launching almost every day, and people just keep buying."

Among the most popular products, the $25 billion Direxion Daily Semiconductor Bull 3X ETF, despite falling about 20% in the past month, still attracted the most inflows; the Direxion Daily TSLA Bull 2X ETF, despite losing over 50% this year, also saw significant inflows. Adam Phillips, investment chief at EP Wealth Advisors, stated, retail investors have recently shown "disciplined buying" characteristics amid volatility, "to some extent, they have become smart money."

Cooling Inflation Reduces Rate Hike Expectations, Dollar Weakens

Adding macro fuel to this rebound are a series of lower-than-expected inflation data.

The U.S. July CPI rose about 3.4% year-on-year, with core inflation continuing to decline; July PPI was flat month-on-month, below expectations; and July retail sales fell 0.6% month-on-month, marking the largest decline in over a year. These data prompted traders to significantly reduce bets on further rate hikes by the Federal Reserve, with the probability of a rate hike in September plummeting from 75% at the end of July to about 25%.

The dollar index subsequently fell to a three-month low, erasing all gains from the hawkish path since the appointment of Fed Chair Waller. Michael Metcalfe, head of macro strategy at State Street Bank, believes that U.S. tech trading "at least for now appears bulletproof"—"Amid geopolitical and economic noise, earnings remain so strong, reinforcing the judgment that this is a structural trade, not a cyclical trade."

Derivatives Market "Bullishness" Returns, Hedging Demand Falls to One-Year Low

Movements in the options market also confirm the shift in sentiment.

According to Cboe data, the Skew index for the S&P 500 index—measuring the difference in cost between hedging downside risk and call options—fell to a one-year low in early August. Mandy Xu, head of derivatives market intelligence at Cboe, stated that investors "sold off hedging tools and turned to buy call options to chase the rebound."

Meanwhile, the VIX fear index has fallen for the fourth consecutive week, even as oil prices soar, tensions in Iran persist, and long-term Treasury yields remain high. This sends a clear signal: the market believes that almost every piece of bad news contains its own bullish hedge—weak employment means the Fed won't hike rates, slowing consumption means the Fed won't hike rates, rising oil prices are seen as temporary, and AI earnings are enough to overshadow everything.

Multiple Conflicting Signals Emerge, "Golden Girl" Narrative Faces Test

However, the gap between asset prices is widening and cannot be ignored.

Oil prices surged about 6% this week, with Brent crude nearing $90 per barrel, primarily due to stalled negotiations in the Strait of Hormuz and escalating U.S. threats of sanctions.

At the same time, this week’s 30-year U.S. Treasury auction cleared at the highest yield in 25 years, and the 10-year auction yield was also at historical highs; although short-term rates have declined due to waning Fed rate hike expectations, long-term rates continue to rise, pushing the term premium to high levels and steepening the yield curve significantly.

This means: the market may believe that the Fed has essentially finished raising rates, but does not believe that inflation has ended.

Deutsche Bank macro strategist Henry Allen warned that "the market is currently pricing in a golden age scenario: growth remains strong, central bank rate hikes are limited, supply shocks prove to be temporary, and oil prices fall again." He said, "This leaves almost no room for error. It is hard to imagine that all these completely benign conditions can exist simultaneously."

Michael Contopoulos, head of multi-asset macro investment at Janus Henderson Investors, also stated that while the fundamentals are strong and an overweight in stocks is reasonable, "chasing crowded and expensive market areas is a huge risk, and we will avoid it."

Currently, a battle between the "golden girl" narrative and bond bears is taking shape. The stock market is betting on a soft landing and an AI earnings supercycle, while the long end of the bond market is pricing in fiscal deficits and supply pressures; both cannot be correct simultaneously. Which side ultimately prevails may become the most important market theme in the second half of 2026.