S&P 500 hits record 7,799 as earnings, cooling inflation fuel rally

The S&P 500 closed at a record 7,798.99, up 0.65 percent, as cooling inflation and strong earnings fueled a return to tech and leveraged bets.

"The magnitude of the beat is something you rarely, if ever, see," said Scott Chronert, head of U.S. equity strategy at Citigroup, which lifted its year-end target to 8,100.

Technology and communication services led the advance, with Meta Platforms, Micron Technology and Netflix among the top contributors to the Nasdaq Composite's 0.81 percent gain. The Russell 2000 small-cap gauge hit a record 3,067, up 23 percent for the year, while the S&P 500 has climbed about 13.2 percent in 2026. Rate-sensitive real estate and utilities lagged as long-end yields stayed elevated. The VIX fell for a fourth straight week, and the Cboe Skew index — a gauge of hedging demand — dropped to a one-year low as investors sold protection to chase upside.

The benchmark has now recovered about 22 percent from its 2026 trough below 6,400, and Citigroup and JPMorgan both raised year-end targets, to 8,100 and 8,000 respectively. Yet a steepening yield curve and oil near $90 a barrel leave the rally exposed if any of its pillars cracks.

Earnings Season Provides the Engine

S&P 500 constituents grew second-quarter profit more than 50 percent from a year earlier, or about 30 percent excluding investment gains at Amazon and Alphabet. JPMorgan's global market strategy chief, Dubravko Lakos-Bujas, wrote that the "earnings picture remains strong and broadly distributed," with hyperscaler results showing early signs that massive AI investment is starting to pay off. Charles Schwab's macro research head, Kevin Gordon, called tech's sway over the index "the new normal," while noting profit growth is spreading to the rest of the economy.

The rebound has been sharpest in the stocks that fell hardest in July. Super Micro Computer has gained about 38 percent this month, memory maker Sandisk more than 33 percent, and cloud firms CoreWeave and Nebius each more than 40 percent over the past two weeks. Micron and Intel are both up about 15 percent.

Leveraged products have drawn renewed inflows. Leveraged index funds have created nearly $50 billion of wealth this year, while single-stock leveraged funds have lost about $4 billion, according to Bloomberg Intelligence. The $25 billion Direxion Daily Semiconductor Bull 3X ETF attracted the most inflows even after a 20 percent drop over the past month, and the Direxion Daily TSLA Bull 2X ETF drew heavy money despite a more than 50 percent loss this year.

Inflation Cools, but the Curve Warns

The macro fuel came from a run of softer data. July CPI rose 0.1 percent month over month, an annual 3.4 percent, and July PPI was flat, below the 0.2 percent forecast. Retail sales fell 0.6 percent in July, the biggest drop in more than a year. Traders cut the odds of a September rate hike to about 25 percent from 75 percent at the end of July, and the two-year Treasury yield fell about six basis points to 4.14 percent. The dollar index slipped to a three-month low, erasing the gains that followed the Federal Reserve's hawkish turn.

Yet the long end tells a different story. This week's 30-year Treasury auction cleared at the highest yield in 25 years, and the 10-year auction also drew historically high yields, steepening the curve as term premiums rise. "The market is pricing a goldilocks combination: growth stays strong, central-bank hikes are limited, supply shocks prove temporary and oil falls again," said Henry Allen, macro strategist at Deutsche Bank. "That leaves almost no room for error."

Oil complicates the picture. Brent crude settled at $87.07 a barrel, down more than 2 percent on the day but up about 6 percent for the week, as talks over the Strait of Hormuz stalled and Washington threatened tougher sanctions. Janus Henderson's Michael Contopoulos, head of multi-asset macro investing, said that while strong fundamentals justify an overweight in stocks, "chasing crowded and expensive areas of the market is a big risk, and we would avoid that."

The standoff between a stock market betting on a soft landing and an AI earnings supercycle, and a bond market pricing fiscal deficits and supply, is shaping up as the defining theme of the second half of 2026. Applied Materials reports after the close, offering the next test of the semiconductor equipment sector that has powered much of the rally.

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