US Stocks Hit New Highs! Investors Who Weathered the 'Summer Storm' Are Rewarded

After nearly two months of intense volatility, major US stock indices staged a strong breakout, with the S&P 500 Index hitting an ATH (All-Time High). Investors who held their positions were finally rewarded. This rally was led by tech giants, further fueled by a wave of short covering, as market sentiment rapidly shifted from extreme pessimism to a broad-based chase for gains.

The S&P 500 Index closed at an ATH (All-Time High) on Tuesday, marking the 25th record closing day of the year and the first time since June 2. Meanwhile, the Dow Jones Industrial Average and the small-cap Russell 2000 Index simultaneously hit new highs, while the iShares MSCI ACWI ETF, which tracks global stocks, also set a new record. The Nasdaq Composite surged 3.5% in a single day, its largest one-day gain since May 2025, bringing its cumulative rebound from last week's lows to nearly 10%.

The direct catalysts for this rise came from multiple directions: US Treasury Secretary Scott Bessent stated on CNBC that an Iran deal could be finalized "in the next day or two," driving oil prices down by about 6%. This led to a decline in Inflation Expectations and a 3 to 5 basis point drop in Treasury yields, providing strong support for the stock market.

At the same time, the Magnificent Seven rose nearly 10% cumulatively over four days, with Amazon's market cap returning to $3 trillion and Nvidia's reclaiming $5 trillion. The comprehensive recovery in the technology sector became the core driver behind the index breakout.

42-Day Wait: New High After Longest Interval

According to Dow Jones Market Data, the S&P 500 Index waited 42 trading days between its previous record close and this new high, the longest gap since the 53-day interval that ended on April 16 this year. The breakout on April 16 marked the point where the index completed the fastest V-shaped recovery on record.

During this period, the surface-level maximum drawdown did not appear severe—the intraday low on June 9 was only 4.9% below the historical high. However, this figure masked the real pain within the market:

Beneficiaries of the AI supply chain, such as semiconductors, utilities, and industrial stocks, were heavily hit. Correlation between individual stocks dropped to multi-year lows, with many stocks moving contrary to the broader market, resulting in extreme internal divergence.

The Roundhill Magnificent Seven ETF outperformed the S&P 500 Index by about 5 percentage points over the last two trading days, marking the largest two-day excess return in the ETF's history. The continued weakness in large-cap tech stocks had previously been the core factor suppressing the S&P 500 and Nasdaq indices.

"Leopold Liquidation" Signals Market Bottom

The key turning point in the market was closely linked to a mandatory block trade.

Situational Awareness, a hedge fund managed by Leopold Aschenbrenner, a rising star in the AI field in his twenties, was forced last month to sell most of its public equity positions via block trades to Citadel, under Ken Griffin, due to margin call pressures.

Since then, multiple technical and sentiment indicators have shown positive signals. The Nasdaq Composite has rebounded nearly 10% since the "Leopold low," with the market taking only five trading sessions to bounce from a one-month low to an ATH (All-Time High).

A senior equity volatility trader commented:

"They went from 'run for the hills' to 'buy everything' in four days... This is not sustainable."

Michael Monaghan, portfolio manager of the Founders 100 ETF, stated:

"As they say, bull markets climb a wall of worry, and we have indeed been very worried in recent weeks. But the forced selling by Situational Awareness seems to have established a market bottom, and I believe we are seeing all data points converging in a positive direction."

Technical Breakout and Sector Resonance

On the technical front, the S&P 500 Index strongly broke through a pattern known as a "flag" or "wedge" on Tuesday, which is typically seen as a bullish signal. Adam Turnquist, Chief Technical Strategist at LPL Financial, said:

"We broke through 7,600 points—that is what matters most, as it was the upper boundary of the range."

The Nasdaq Composite simultaneously reclaimed its 50-day moving average, with momentum factors rebounding more than 22% from last week's lows. AI-related themes—including optics, AI infrastructure, semiconductors, data centers, and storage—led the gains across the board.

Notably, the sector divergence that had previously plagued the market also showed significant improvement: tech giants, software stocks, and semiconductor stocks rose in unison on Tuesday, breaking the previous pattern where they alternately dominated and moved in opposite directions.

Citing analysis from Goldman Sachs trader Peter Callahan via ZeroHedge, there are four pillars supporting this surge:

Cleaner positioning (previous large-scale deleveraging is complete), improved technicals (rebound in momentum factors and reduced leverage ETF exposure), more reasonable valuations (Nasdaq 100 forward P/E ratio is discounted by about 10% compared to the five-year average), and improved fundamental visibility (improved return on capital expectations following last week's earnings season).

Short Covering and FOMO Drive the Rally

The structural characteristics of this rally are also worth noting. Citing Goldman Sachs data via ZeroHedge, this marks the largest short-covering rally in the past four days and the largest since Thanksgiving. The market is exhibiting a typical "Spot Up, Vol Up" dynamic.

Additionally, 0DTE option traders have heavily bought straddles and strangles, betting on further increases in volatility.

Lee Coppersmith, Liquidity Strategist at Goldman Sachs, pointed out that demand for short-term index call options was extremely strong this week, primarily focused on the S&P 500 and Nasdaq. Following large-scale de-risking in July, the one-day drop in the one-month 25-delta put/call skew for the S&P 500 yesterday was the largest since November 6, 2024 (the day after Trump won the election).

Despite the surging market sentiment, the Goldman Sachs trading desk also noted that overall trading volume on Tuesday was 7% lower than the five-day average, with activity scoring only 4 out of 10. This indicates that this rise was not a broad-based volume breakout, raising questions about the sustainability of the chase for gains.

Meanwhile, although oil prices fell sharply due to expectations of an Iran deal, Qatar reminded that no formal agreement exists yet. Rebecca Babin, Senior Energy Trader at CIBC Private Wealth Group, pointed out that "this is a market that constantly reprices risk based on the prospect of flow restoration rather than the details required for implementation," warning that upward momentum lacks sustainability, while downward moves are often more rapid.

Analysis suggests that for investors who held their positions, this rally is undoubtedly a reward for patience. However, whether the market can maintain these highs after FOMO sentiment fades will still depend on the progress of trade negotiations, oil price trends, and whether expectations for AI investment returns can continue to be realized.