By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panel discusses a 'risk-on' rally driven by easing geopolitical tensions and strong earnings, but they express caution due to narrow market breadth, reliance on AI-driven growth, and uncertainty about inflation and Fed policy. The market is pricing in a soft landing, but risks remain.
Risk: Narrow market breadth and overreliance on AI-driven growth
Opportunity: Potential multiple expansion if ISM momentum holds and inflation recedes
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Stocks Settle Sharply Higher as Middle East Tensions Ease
Rich Asplund
7 min read
The S&P 500 Index ($SPX) (SPY) on Monday closed up +1.48%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +1.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.78%. September E-mini S&P futures (ESU26) rose +1.49%, and September E-mini Nasdaq futures (NQU26) rose +1.77%.
Stock indices settled sharply higher on Monday, with the S&P 500 posting a 2-month high, the Dow Jones Industrials posting a 3.5-week high, and the Nasdaq 100 posting a 1.5-week high. Stocks rallied on Monday as the latest signs of easing tensions in the Middle East pushed crude oil prices sharply lower and allayed fears about faster inflation. The slump in crude oil also knocked bond yields lower and supported stocks. The 10-year T-note yield fell -5 bp to 4.68%.
Stocks extended their gains on Monday amid signs of strength in the US economy after the July ISM manufacturing index rose by +2.3 to 55.6, stronger than expectations of 53.9 and the fastest pace of expansion in four years.
On the negative side, US June construction spending unexpectedly fell -0.1% m/m, weaker than expectations of a +0.2% m/m increase.
Dovish comments on Monday from New York Fed President John Williams were supportive for stocks and bonds, as he said interest rates remain well positioned and inflation should ease during the second half of the year.
Sep WTI crude oil prices (CLU26) fell more than 5% on Monday, hoping the Strait of Hormuz could soon be reopened as geopolitical tensions ease. President Trump called off a planned attack on Iran, and Iran suggested negotiations to get more ships moving through the Strait of Hormuz were making progress. Saudi Arabia's Crown Prince Mohammed bin Salman held a call with President Trump over the weekend and "stressed the need to prioritize dialogue to reduce escalation and the importance of making every possible effort to achieve calm."
The outlook for strong Q2 earnings is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1's blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2. So far, earnings results have been positive, with 86% of the 311 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data.
The markets are discounting a 66% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.
Overseas stock markets settled mixed on Monday. The Euro Stoxx 50 rallied to a new all-time high and closed up +1.08%. China's Shanghai Composite closed down -0.59%. Japan's Nikkei-225 Stock Average closed down -0.94%.
Interest Rates
September 10-year T-notes (ZNU6) on Monday closed up +13.5 ticks. The 10-year T-note yield fell -5.1 bp to 4.684%. Sep T-notes moved higher amid Monday's slump of more than -5% in WTI crude oil prices, suppressing inflation expectations. T-notes also gained support on Monday after the US Treasury said it will allow Japan to use the Foreign and International Monetary Authorities Repo Facility, which will allow the BOJ to use its Treasury holdings as collateral to access dollars, rather than sell the bonds on the open market to raise cash for yen intervention.
European government bond yields moved lower on Monday. The 10-year German bund yield fell -5.4 bp to 3.152%. The 10-year UK gilt yield fell -9.7 bp to 4.953%.
The Eurozone July S&P manufacturing PMI was revised downward by -0.1 to 51.9 from the originally reported 52.0.
German June retail sales fell -1.1% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 13 months.
The markets are discounting an 88% chance of a +25 bp ECB rate hike at their next policy meeting on September 10.
US Stock Movers
The Magnificent Seven stocks, sans Apple, rallied on Monday, a bullish factor for the broader market. Meta Platforms (META) closed up more than +6%, and Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOGL) closed up more than +4%. Also, Tesla (TSLA) closed up more than +3%, and Nvidia (NVDA) closed up more than +2%.
Airline stocks and cruise line operators moved higher with Monday's -5% plunge in crude oil prices. Norwegian Cruise Line Holdings (NCLH) closed up more than +6%, and American Airlines Group (AAL), United Airlines Holdings (UAL), and Alaska Air Group (ALK) closed up more than +5%. Also, Delta Air Lines (DAL) and Southwest Airlines (LUV) closed up more than +4%, and Carnival (CCL) closed up more than +3%. In addition, Royal Caribbean Cruises (RCL) closed up more than +1%.
Software stocks rose on Monday to provide support to the overall market. Oracle (ORCL) closed up more than +9%, and ServiceNow (NOW), Thomson Reuters (TRI), and Workday (WDAY) closed up more than +3%. Also, Atlassian Corp (TEAM), Datadog (DDOG), and Palantir Technologies (PLTR) closed up more than +2%, and Salesforce (CRM) closed up more than +1%.
Energy stocks and service providers were under pressure on Monday after WTI crude oil tumbled more than -5%. Diamondback Energy (FANG), Occidental Petroleum (OXY), Phillips 66 (PSX), and Marathon Petroleum (MPC) closed down more than -2%. Also, APA Corp (APA), Chevron (CVX), ConocoPhillips (COP), Devon Energy (DVN), Haliburton (HAL), and Valero Energy (VLO) closed down more than -1%.
Atkore (ATKR) closed up more than +28% after Prysmian agreed to acquire the company for $3.8 billion, or about $95 a share.
Boeing (BA) closed up more than +8% to lead gainers in the Dow Jones Industrials after BNP Paribas double-upgraded the stock to outperform from underperform.
Ferguson Enterprises (FERG) closed up more than +6% after S&P Dow Jones Indices announced the stock will replace Electronic Arts in the S&P 500 before the opening of trading on Wednesday, August 5.
Corning (GLW) closed up more than +6% after Truist Securities upgraded the stock to buy from hold with a price target of $175.
CNH Industrial (CNH) closed up more than +5% after boosting its full-year adjusted EPS forecast to 41 cents to 46 cents from a previous forecast of 35 cents to 45 cents, above the consensus of 41 cents.
Supernus Pharmaceuticals (SUPN) closed up more than +3% after agreeing to combine with Indivior Pharmaceuticals in a tax-free all-stock merger of equals.
GameStop (GME) closed down more than -12% after announcing plans to exchange about $1.4 billion in outstanding convertible senior notes for shares of its common stock with certain existing shareholders.
Krystal Biotech (KRYS) closed down more than -8% after reporting Q2 net product revenues of $119.2 million, weaker than the consensus of $122.3 million.
Marriott International (MAR) closed down more than -6% to lead losers in the S&P 500 after reporting Q2 revenue of $7.07 billion, weaker than the consensus of $7.22 billion.
Fair Isaac (FICO) closed down more than -6% after Wolfe Research downgraded the stock to peer perform from outperform.
eBay (EBAY) closed down more than -5% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $92.
Circle Internet Group (CRCL) closed down more than -3% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $38.
Earnings Reports (8/4/2026)
Advanced Micro Devices Inc (AMD), AMETEK Inc (AME), Amgen Inc (AMGN), Apollo Global Management Inc (APO), Aptiv PLC (APTV), Archer-Daniels-Midland Co (ADM), Arista Networks Inc (ANET), Assurant Inc (AIZ), Ball Corp (BALL), Booking Holdings Inc (BKNG), Broadridge Financial Solutions (BR), Caterpillar Inc (CAT), Cummins Inc (CMI), DaVita Inc (DVA), Devon Energy Corp (DVN), Duke Energy Corp (DUK), DuPont de Nemours Inc (DD), Emerson Electric Co (EMR), EOG Resources Inc (EOG), Expeditors International of Washingtom (EXPD), Fidelity National Information (FIS), Gartner Inc (IT), Gilead Sciences Inc (GILD), Healthpeak Properties Inc (DOC), Henry Schein Inc (HSIC), IDEXX Laboratories Inc (IDXX), International Flavors & Fragrances (IFF), Jacobs Solutions Inc (J), Kimberly-Clark Corp (KMB), Kimco Realty Corp (KIM), Leidos Holdings Inc (LDOS), Marathon Petroleum Corp (MPC), McDonald's Corp (MCD), Merck & Co Inc (MRK), Mosaic Co/The (MOS), NRG Energy Inc (NRG), Paramount Skydance Corp (PSKY), Pfizer Inc (PFE), Pinnacle West Capital Corp (PNW), Prudential Financial Inc (PRU), Public Service Enterprise Group (PEG), Qnity Electronics Inc (Q), Revvity Inc (RVTY), Rockwell Automation Inc (ROK), Sysco Corp (SYY), TransDigm Group Inc (TDG), Waters Corp (WAT), WW Grainger Inc (GWW), Wynn Resorts Ltd (WYNN), Zebra Technologies Corp (ZBRA).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
Four leading AI models discuss this article
"The rally rests on geopolitics and AI earnings that could both reverse faster than the article implies."
The article paints a classic risk-on rally: easing Middle East tensions crushed oil >5%, pulled 10y yields -5bp to 4.68%, and let the S&P 500 (+1.48%), Nasdaq 100 (+1.78%) hit multi-week highs. ISM manufacturing at 55.6 (fastest in 4yrs) and +23% expected Q2 EPS growth (AI-driven, 86% beat rate) reinforce the soft-landing narrative. Yet the piece glosses over construction spending missing, mixed overseas markets (China/Nikkei down), and markets pricing 66% odds of a September Fed hike—odd given 'dovish' Williams comments. Energy names sold off sharply while travel, software, and Magnificent Seven (ex-AAPL) led.
A 5% oil drop may prove fleeting if Hormuz negotiations stall or Trump’s de-escalation rhetoric reverses; meanwhile the 66% priced-in hike plus still-elevated 4.68% 10y yield could reprice growth stocks quickly if Q2 earnings momentum falters outside the AI cohort.
"The market is over-extrapolating AI-driven EPS growth while ignoring the structural risk of sticky 4.68% yields and potential earnings disappointments in non-AI sectors."
The market is currently pricing in a 'Goldilocks' scenario: cooling inflation via lower oil prices, resilient manufacturing (ISM 55.6), and robust AI-driven earnings growth. While the rally in the Magnificent Seven and the easing of Middle East tensions provide immediate momentum, the market's reliance on a 23% Q2 earnings growth projection is precarious. If AI infrastructure spending—which supposedly drives 60% of S&P 500 EPS growth—fails to translate into tangible margin expansion for the broader index, we are looking at a valuation bubble. The 10-year yield at 4.68% remains elevated; if the Fed holds rates higher for longer despite these 'dovish' signals, the current P/E expansion will face a sharp, painful reversal.
The rally may be a classic 'dead cat bounce' fueled by geopolitical relief rather than fundamental strength, leaving the market highly vulnerable if energy prices spike again or if the September FOMC meeting delivers a hawkish surprise.
"This is a relief rally in mega-cap tech on geopolitical de-escalation, not a broad-based re-rating, and it masks deteriorating breadth and a bond market that hasn't fully bought the 'inflation solved' narrative."
The article frames this as a clean 'risk-off to risk-on' pivot: geopolitical easing → crude down 5% → inflation fears fade → stocks rally. But the real story is narrower and more fragile. The Mag Seven (ex-Apple) drove 60%+ of S&P gains; breadth was weak (energy down, defensive sectors lagging). The ISM beat is real (+55.6 vs. 53.9), but construction spending missed, and the article buries that the 10-year yield fell only 5 bp despite a 5% oil crash—suggesting bond markets aren't fully convinced inflation is tamed. Williams' dovish comments are being weaponized as rate-cut fuel, but the market is pricing only 66% odds of a 25 bp hike in September, not a cut. That's not dovish; that's already priced. The earnings tailwind (23% growth, 86% beat rate) is real but heavily concentrated in AI infrastructure—a sector already trading at elevated multiples.
If geopolitical risk truly recedes and the Fed holds rates steady through year-end, the combination of strong earnings growth, lower oil, and stable yields could sustain this rally well beyond Monday. The article's 'narrow breadth' concern may be overblown if mega-cap AI dominance reflects genuine structural earnings power.
"Durable upside requires oil stability and earnings breadth beyond AI-driven tailwinds; otherwise multiples compress and breadth narrows."
Today's bounce looks like a risk-on response to easing Middle East tensions, softer energy, and surprisingly solid Q2 momentum, with AI spend framed as the core EPS driver for the S&P 500. The strongest counter is that this rally is macro- and sentiment-led rather than earnings-led, and it may prove fragile if oil rebounds, geopolitics flare again, or inflation expectations prove stickier than assumed. The market still prices a 25bp rate hike in September (66%), which could be negative for equities if growth slows or multiple expansion stalls. The breadth seems tech-led (Magnificent Seven) while energy and cyclical gaps broaden risk to the downside if guidance disappoints.
Macro tilt more than earnings-led; oil rebounds or renewed Middle East risk could trigger a rapid reversal. The AI-driven EPS tailwind may prove overstated if capex and TAM expansion disappoint.
"Probability is for a September rate cut, not hike, supporting broader rally sustainability."
Claude's claim that markets price only a 66% September hike—not a cut—misreads the data. CME FedWatch shows ~66% probability of a September *cut*, not hike, aligning with Williams' dovish tone. This reframes the rally as less fragile. The narrow AI breadth risk remains, but lower-for-longer odds support multiple expansion beyond mega-caps if ISM momentum holds.
"The market's expectation of a September rate cut reflects an impending policy error rather than a successful soft landing."
Grok, you're misinterpreting the 'dovish' signal. A 66% probability of a cut in September isn't a victory; it's a desperate pivot. If the Fed is forced to cut by September despite an ISM print of 55.6, it implies they see a systemic crack in the labor market or credit conditions that the equity market is currently ignoring. We aren't pricing in a soft landing; we are pricing in a policy error that will eventually crush small-cap margins.
"A September cut driven by disinflation ≠ a policy error; but markets can't price both lower rates and full earnings power if growth is actually slowing."
Gemini's 'desperate pivot' framing assumes the Fed cuts because of labor cracks, but that's speculative. CME data shows 66% cut odds, yes—but the trigger matters. If cuts come from *inflation actually receding* (oil -5%, ISM breadth improving), that's structurally different from a policy error. The real risk: markets are pricing *both* lower rates *and* sustained AI earnings growth. That only works if demand stays resilient. If the cut comes because growth is actually rolling over, multiples compress hard regardless of rate direction.
"66% Fed-cut odds are conditional; if inflation sticks, odds swing to no-cut, risking rapid multiple compression and revealing breadth risk beyond AI."
Gemini's 'desperate pivot' take hinges on a misread: a 66% Fed-cut probability isn't a sign of weakness, it's a conditional price on inflation and labor data. If inflation sticks or credit conditions deteriorate, odds flip back toward no-cut or a delayed cut, potentially triggering a sharp multiple compression. The bigger, underappreciated risk is AI concentration masking breadth weakness, not simply a smooth ride on a dovish path.
The panel discusses a 'risk-on' rally driven by easing geopolitical tensions and strong earnings, but they express caution due to narrow market breadth, reliance on AI-driven growth, and uncertainty about inflation and Fed policy. The market is pricing in a soft landing, but risks remain.
Potential multiple expansion if ISM momentum holds and inflation recedes
Narrow market breadth and overreliance on AI-driven growth