U.S. stocks continue to climb, with the S&P 500 reaching fresh highs after rebounding sharply from recent support. The rally has been fueled by a powerful short squeeze, solid corporate earnings and optimism surrounding Iran negotiations. However, technical indicators now suggest the market is overbought, making it increasingly vulnerable to pullbacks despite continued buying interest. $SPY $NVDA $AMD $LLY $DIS
Much of the recent advance followed the collapse of the highly leveraged Situational Awareness fund, which accelerated short covering and helped reverse the previous decline. While earnings remain strong, investors should look beyond headline growth figures, as one-off investment gains have inflated results. Even after adjusting for these effects, corporate earnings growth remains healthy but less spectacular than widely advertised.
Geopolitics also remain a key driver. Although Washington continues to signal progress in talks with Iran, Tehran maintains negotiations are being conducted through Oman. Meanwhile, Houthi attacks on a Saudi oil tanker have largely been ignored by markets, reflecting continued optimism that tensions will ease.
Looking ahead, investors should remain mindful of historically weaker seasonal performance during September and October, particularly in midterm election years. Nvidia received a boost after SpaceX selected its Blackwell platform for future AI infrastructure, while several major companies, including Eli Lilly, Disney, Shopify and Arista Networks, reported earnings above expectations. Weak ADP employment data also supported equities by reinforcing expectations for a patient Federal Reserve.
