Stock Buyers Power Biggest S&P 500 Rally Since May: Markets Wrap

(Bloomberg) — A renewed wave of dip buying lifted stocks, with traders sifting through solid earnings amid bets the Federal Reserve will soon cut rates. Bonds saw small moves ahead of a heavy slate of US debt sales.

The rebound in risk appetite drove the S&P 500 up 1.5%, its biggest rally since May. Almost every major group in the US equity benchmark advanced, and about 85% of its companies closed higher. Tech megacaps, which bore the brunt of the recent selling, led gains on Monday. Nvidia Corp. and Meta Platforms Inc. climbed at least 3.5%. The Russell 2000 index of small firms added 2.1%.

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Investors should buy into the selloff in US stocks because of the robust earnings outlook for the coming year, said Morgan Stanley’s Michael Wilson. At Goldman Sachs Group Inc., David Kostin noted executives had so far sounded confident in their ability to mitigate the impact of tariffs on profits.

S&P 500 earnings are crushing second-quarter expectations — up 9.1%, triple the pre-season forecast and the strongest beat rate since 2021, according to data compiled by Bloomberg Intelligence.

“This week is a quiet one on the economic calendar, so traders may be taking their cues from earnings, along with any new tariff and trade developments,” said Chris Larkin at E*Trade from Morgan Stanley.

Larkin also noted that a key question now is whether traders will view any signs of economic weakness as a market negative, or as a catalyst for the Fed to cut rates sooner rather than later.

Action in the bond market was fairly muted as the US is set to auction $125 billion of new three-, 10- and 30-year debt this week. The dollar was little changed. Oil fell as traders took stock of OPEC+’s latest bumper supply increase while Donald Trump vowed to penalize India for buying Russian crude.

“This week will be a telling one: a tug-of-war is unfolding between traditional institutional seasonality, which suggests weakness, and retail investors who may see a dip as a buying opportunity,” said Mark Hackett at Nationwide. “It’s a good test for who’s really in control.”

Looking ahead, the setup into fall favors the bull case with potential rate cuts and strong corporate earnings laying the groundwork for a renewed rally into year-end and a fresh slate for 2026, Hackett added.

“The incoming batch of economic data will provide clues on which direction we’re going, but for now, the equity market has voted loud and clear, and investors are enthusiastic about profit momentum going forward,” said Jose Torres at Interactive Brokers. “Time will tell.”

Meantime, Jeffrey Yale Rubin at Birinyi Associates Inc. says Corporate America continues to be one of the largest buyers of US stocks, showing confidence in their businesses despite unsettling tariff headlines.

July announced buybacks totaled a record-setting $165.63 billion, according to data compiled by Birinyi. Year-to-date announced buybacks now stands at $926.1 billion, the data showed.

S&P 500 earnings are beating expectations, but with stocks near all-time highs, the question is whether this recovery still has legs, according to BI strategists Gina Martin Adams and Wendy Soong.

“Management sentiment is at an eight-year high, yet guidance tells a more cautious story with concerns about tariffs and rising costs,” they noted. “The market shows this tension: misses in large caps and small are punished sharply, beats draw only modest applause.”

Following a broad flight from risk assets at the end of last week, equities also bounced amid bets the Fed will cut rates this year.

Investors see around 85% odds that the Fed will lower rates by a quarter point in September, based on swaps tied to policy-meeting dates. While that’s down from Friday’s peak of 90%, it was around 40% before the Friday’s weak payroll data was published.

“If the Fed starts to cut rates at its September meeting, we believe this would be supportive for markets,” said David Lefkowitz at UBS Global Wealth Management. “In combination with our positive view on earnings, we expect further upside for US stocks over the next 12 months.”

Societe Generale’s Manish Kabra and Charles de Boissezon see US stocks extending their climb into next year, lifted by the Fed’s looming rate cuts.

“Fed cuts to shape the index,” they wrote, adding that gradual cutting would be positive, while aggressive cuts could drive markets to a valuation bubble.

While Friday’s jobs report doesn’t mean we are entering a recession, it shows that companies are freezing hiring and firing until there is more policy certainty and business confidence, according to Robert Ruggirello at Brave Eagle Wealth Management.

“The slowing labor market makes a Federal Reserve rate cut easier than it was a week ago, and echoes some of the warnings that Jerome Powell has been sounding about how tariffs could slow the economy and cause too much uncertainty for small business hiring plans,” he said.

As investors across Wall Street eagerly piled into US stocks in July, sending the S&P 500 to 10 all-time highs in a month, a notable group was heading in the opposite direction: corporate executives.

Insiders at just 151 S&P 500 companies bought their own stocks last month, the fewest since at least 2018, according to data compiled by the Washington Service. And while July’s selling by corporate insiders slowed from June’s pace, purchases dropped even more, pushing the ratio of buying-to-selling to the lowest level in a year, the data shows.

“In the near term, risk-on sentiment may need to contend with an economic outlook of slowing growth, elevated inflation, and ongoing policy uncertainty,” said Seema Shah at Principal Asset Management. “So far, companies have navigated the tariff noise without much visible strain, but pressures are likely to grow.”

Tariffs

On the tariff front, President Donald Trump said he would be “substantially raising” the tariff on Indian exports to the US over the Asian nation’s purchases of Russian oil, a move New Delhi slammed as unjustified in an escalating fight between the two major economies.

Meantime, the European Union is expecting Trump to announce executive actions this week to formalize the bloc’s lower tariffs for cars and grant exemptions from levies for some industrial goods such as aviation parts, according to people familiar with the matter.

“Our base case remains that US tariffs will eventually settle around 15%. While this would be the highest since the 1930s, and six times higher than when Trump returned to office, we do not expect it to cause a recession or end the equity bull market,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

“However, in the near term, the ‘handshake’ nature of trade deals agreed so far means that tensions could resurface as the details are negotiated,” she noted.

Corporate Highlights:

Palantir Technologies Inc. reported a 48% increase in revenue for the second quarter to more than $1 billion, citing the “astonishing impact” of artificial technology on its business. Tesla Inc. approved an interim stock award worth about $30 billion for Chief Executive Officer Elon Musk, a massive payout meant to keep the billionaire’s attention on the automaker as a legal fight over a 2018 pay package drags on. American Eagle Outfitters Inc. jumped as President Donald Trump came out in support of a controversial ad from the company. The spot, with the actress Sydney Sweeney, is the “HOTTEST ad out there,” Trump said in a social media post. He added American Eagle jeans are “flying off the shelves.” Tyson Foods Inc. raised its full-year earnings forecast as strong US chicken demand and cheap feed costs help it withstand losses it its beef business. Spotify Technology SA announced it’s raising premium subscription prices across many markets outside the US. Workers at Boeing Co.’s St. Louis-area defense factories are striking for the first time in almost three decades after union members rejected the company’s modified contract offer. Warren Buffett’s Berkshire Hathaway Inc. took a $3.8 billion impairment on its Kraft Heinz Co. stake, the latest hit to a bet that’s weighed on the billionaire investor’s company in recent years. CommScope Holding Co. reached a deal to sell its broadband and cable equipment arm to Amphenol Corp. for about $10.5 billion in cash, the second such deal it’s done with Amphenol as part of a series of divestitures aimed at paying off debt. Joby Aviation Inc. said it plans to buy the helicopter rideshare business of Blade Air Mobility Inc. for as much as $125 million in stock or cash as the electric aviation firm seeks to expand its battery-powered air taxis into a ready-made market for its aircraft. Harley-Davidson Inc. appointed the head of Topgolf Artie Starrs to be its new chief executive officer, as the motorcycle manufacturer grapples with tariffs and tepid consumer demand. Lyft Inc. said it’s partnering with China’s Baidu Inc. to launch autonomous vehicles in Europe starting next year, an agreement that comes after the US rideshare company finalized its first expansion into the continent. What Bloomberg Strategists say…

“With more than two Fed cuts priced by year-end and high odds for a cut in September, macro bears need fresh data shocks to regain control of the tape, as the ‘Powell Put’ narrative is now building. While Tuesday’s services PMI data may provide that, it’s more likely the ongoing debate between better-than-expected earnings and cooling economic data will continue for some time. This will allow trend-followers, volatility-control and buy-the-dip discretionary money to stay active and limit pullbacks to tactical buying opportunities.”

—Michael Ball, Macro Strategist, Markets Live

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Some of the main moves in markets:

Stocks

The S&P 500 rose 1.5% as of 4 p.m. New York time The Nasdaq 100 rose 1.9% The Dow Jones Industrial Average rose 1.3% The MSCI World Index rose 1.2% Bloomberg Magnificent 7 Total Return Index rose 2% The Russell 2000 Index rose 2.1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro fell 0.2% to $1.1568 The British pound was little changed at $1.3277 The Japanese yen rose 0.3% to 147.03 per dollar Cryptocurrencies

Bitcoin rose 0.3% to $114,751.87 Ether rose 5.1% to $3,670.48 Bonds

The yield on 10-year Treasuries declined two basis points to 4.20% Germany’s 10-year yield declined five basis points to 2.62% Britain’s 10-year yield declined two basis points to 4.51% Commodities

West Texas Intermediate crude fell 1.8% to $66.09 a barrel Spot gold rose 0.4% to $3,375.85 an ounce ©2025 Bloomberg L.P.