Stocks Rebound on Strong Earnings Outlook and Renewed Fed Confidence

A fresh wave of dip buying helped fuel a rebound in U.S. equities, with early earnings results showcasing the resilience of Corporate America. Investors grew more confident that the Federal Reserve’s expected rate cuts will continue to support the market’s upward momentum.

‍

Wall Street largely shrugged off renewed trade tensions between the U.S. and China, allowing the S&P 500 to close higher. Big banks extended their recent rally after strong earnings from Morgan Stanley and Bank of America Corp., while optimism surrounding artificial intelligence lifted chip stocks. ASML Holding NV’s positive outlook on AI demand, combined with a bullish analyst upgrade for Nvidia Corp., added fuel to the semiconductor sector’s gains.

‍

“Markets are being driven by a delicate mix of optimism and caution,” said Fawad Razaqzada of City Index and Forex.com. He noted that investors appear largely unbothered by the latest U.S.–China trade developments. “The dominant narrative remains expectations for Fed rate cuts, which continue to underpin risk appetite. Meanwhile, upbeat earnings from U.S. banks have strengthened belief in the durability of Corporate America.”

‍

After one of the strongest six-month stretches for stocks since the 1950s, some investors took profits amid the resurgence of trade worries. However, market sentiment quickly recovered as attention shifted back to fundamentals. Speaking at a CNBC event, Treasury Secretary Scott Bessent said that, to his knowledge, President Donald Trump still plans to meet Chinese President Xi Jinping later this month a sign that dialogue between the two nations remains open despite tariff tensions.

‍

“Despite all the recent tariff noise, the fundamentals remain intact,” said Max Kettner of HSBC. He added that a weaker U.S. dollar should provide further tailwinds for American equities over the next two quarters. “Global consensus expectations have been revised upward since May,” he said, “but they’re still conservative enough that more upgrades could be coming.”

‍

Kettner also mentioned he remains “risk-on” heading into 2026, pointing to manageable short-term growth expectations in the U.S. that could easily be exceeded. His outlook reflects a broader market sentiment that corporate profitability and steady consumer spending can offset macroeconomic uncertainty.

‍

Meanwhile, the bond market saw gains across the board. U.S. Treasuries strengthened as traders parsed a series of remarks from Federal Reserve officials following Chair Jerome Powell’s signal that rate cuts would continue amid signs of labor market softness. Powell’s comments reinforced the market’s belief that the Fed is committed to supporting economic stability while gradually easing policy.

‍

In Europe, French bonds rallied after Prime Minister Sebastien Lecornu announced new budget concessions designed to calm political tensions and prevent a deeper crisis. The move reassured investors and drove strong demand for French debt.

‍

Elsewhere, gold surged to a new record high, extending its rally as investors sought a hedge against economic uncertainty and potential currency weakness.

‍

The combination of encouraging corporate earnings, easing monetary policy expectations, and resilient investor sentiment has created a supportive backdrop for risk assets. While some geopolitical concerns linger, the market’s reaction underscores a growing belief that the U.S. economy can weather temporary headwinds.

‍

As earnings season continues, investors will closely monitor corporate guidance for signs of how businesses are managing costs and demand in a moderating economic environment. For now, though, the prevailing tone remains constructive buoyed by the view that rate cuts, steady growth, and robust corporate fundamentals can keep fueling the rally that began earlier this year.

‍