In August, Wall Street's "bull market" is back, and the "gambling spirit" has also returned.

U.S. stocks staged a strong rebound in August, with the S&P 500 index hitting record highs as investors returned to the technology and leveraged sectors. Robust corporate earnings and cooling inflation provided fuel for the rally, but a surge in oil prices, high long-term bond yields, and conflicting cross-asset signals are making this “golden age” trade increasingly fragile.

After a dramatic selloff in chip stocks in July, market fears have come and gone swiftly. The S&P 500 has risen about 4% month-to-date, surpassing the 7,800 level this week to reach new all-time highs. The Nasdaq 100, which briefly fell into a technical correction, is now only 2.5% below its June peak. This week, both Citi and JPMorgan raised their year-end 2026 targets for the S&P 500, further strengthening the recent bullish sentiment.

Capital continues to pour in. According to State Street Bank custodial data tracking over $50 trillion in institutional funds, demand for U.S. information technology stocks from institutions has returned to a five-year high over the past month. Meanwhile, speculative instruments such as leveraged ETFs and call options are regaining popularity, and both retail and institutional investors are increasing their risk exposure.

However, the rapid comeback of bullish bets has prompted some analysts to become cautious—today’s market is pricing in a “perfect everything” scenario, leaving little room for error.

The core driver behind the current rally is an earnings season described by analysts as “incredible.”

S&P 500 component earnings grew by more than 50% year-over-year in Q2; even excluding investment gains from Amazon and Alphabet, growth was still about 30%, which is strong. This week, Citi's Head of U.S. Equity Strategy Scott Chronert raised the year-end target to 8,100, saying “the degree of outperformance here is something you rarely, if ever, see.” JPMorgan’s Head of Global Market Strategy, Dubravko Lakos-Bujas, wrote in a client report that the “US equity earnings picture remains robust and broadly distributed across sectors,” and that the performance of some mega-cap cloud companies shows early signs of their large AI investments starting to pay off. The bank raised its S&P 500 year-end target from 7,800 to 8,000, implying a 16.5% gain this year.

Charles Schwab’s Head of Macro Research and Strategy, Kevin Gordon, commented, “In terms of the extent to which tech can drive the index, this is the new normal.” Still, analysts have noticed that earnings growth is spreading to other economic sectors—a healthy sign that the bull market can continue.

The sectors leading the rebound are precisely those that suffered most in July.

Since August, Super Micro Computer has surged about 38%, memory company Sandisk gained over 33%, and cloud companies CoreWeave and Nebius each advanced more than 40% in the past two weeks; Micron and Intel are also up about 15% each.

The leveraged ETF market is also seeing a sharp rise in speculation. According to Bloomberg Intelligence, so far this year, leveraged index funds have generated nearly $50 billion in wealth, while single-stock leveraged ETFs have lost about $4 billion over the same period. This stark contrast reveals a harsh reality: those betting on broad-based leveraged strategies to sustain the rally have outperformed, while attempts to amplify gains in single-hot stocks have suffered greatly.

Bloomberg Intelligence ETF analyst James Seyffart points out:

“Single-stock products come with higher risk and volatility, which makes it easier for investors to get burned. But the space is so new, and new products are launching almost daily, so people just keep buying.”

Among the most popular products, the $25 billion Direxion Daily Semiconductor Bull 3X ETF, despite a roughly 20% decline over the past month, still attracted the most inflows; even with over 50% year-to-date losses, the Direxion Daily TSLA Bull 2X ETF remains near the top in inflow rankings. Adam Phillips, Director of Portfolio Strategy at EP Wealth Advisors, commented that retail investors lately have demonstrated “disciplined buying” amid the volatility, “which to some extent, has become the smart money.”

The rally’s macro fuel has been a series of inflation data coming in below expectations.

U.S. July CPI rose about 3.4% year-over-year, with core inflation continuing to decline; July PPI was flat month-over-month, lower than expected; and July retail sales fell 0.6% month-over-month, the largest drop in over a year. This spurred traders to sharply reduce bets on further Federal Reserve rate hikes, with the likelihood of a hike in September plunging from 75% at the end of July to about 25% now.

The U.S. dollar index fell to a three-month low, erasing all gains from Fed Chair Walsh’s hawkish path since taking office. State Street Bank’s Head of Macro Strategy, Michael Metcalfe, sees U.S. tech trading as “bulletproof for now”—“Resilient earnings amid geopolitical and economic noise reinforce the judgement that this is a structural, not a cyclical, trade.”

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

According to Cboe data, the S&P 500 Skew Index—which measures the difference between the cost of downside hedging and upside calls—fell to a one-year low in early August. Mandy Xu, Cboe’s Head of Derivatives Market Intelligence, noted that investors “dumped hedges in favor of chasing the rally with call options.”

Meanwhile, the VIX fear gauge declined for a fourth straight week, even as oil prices soared, tensions with Iran persisted, and long-term Treasury yields remained elevated. This sends a clear signal: the market believes nearly every piece of bad news contains its own bullish hedge—weak labor means the Fed won’t hike, slowing consumption means the Fed won’t hike, rising oil is seen as temporary, and AI earnings outweigh everything else.

However, the gulf between asset prices is widening and should not be ignored.

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

Meanwhile, this week’s U.S. 30-year Treasury auction cleared at its highest yield in 25 years, with the 10-year auction yield also near record highs. Although short-term interest rates are falling as Fed rate hike expectations recede, long-end rates continue to climb, pushing term premiums higher and making the yield curve notably steeper.

This means: the market may believe the Fed is done hiking rates, but does not believe inflation is over.

Deutsche Bank macro strategist Henry Allen warns, “The market is currently pricing in a Goldilocks scenario: strong growth, limited central bank rate hikes, temporary supply shocks, and oil prices falling back again.” He says, “This leaves almost no room for error. It’s hard to imagine all of these benign conditions being true at the same time.”

Michael Contopoulos, Head of Multi-Asset Macro at Janus Henderson Investors, also said that while strong fundamentals and stock overweights make sense, “chasing crowded and expensive market segments carries huge risk and we are steering clear.”

Currently, a battle is taking shape between the ‘Goldilocks’ narrative and Treasury market bears. Stocks are betting on a soft landing and a super-cycle of AI-driven profits, while long bonds are pricing in fiscal deficits and supply pressures. Both cannot be right at the same time. Which side prevails may become the most important market theme of the second half of 2026.