U.S. Equities Quick Take: Stocks have resumed their uptrend

Stocks have resumed their uptrend after the correction, with semiconductors leading.

The move holds as long as oil stays down and the 10-year Treasury yield stays below 5%.

When the Fed raised rates last Wednesday, its first hike in three years, only 49% of S&P 500 stocks were trading above their 200-day moving averages. The index itself was more than 4% above its own. That split hadn’t happened since April 2000.

A few heavyweights were holding up the index while most stocks were already breaking down. The AAII bull-bear spread fell to -24.5. Goldman’s sentiment indicator dropped to half a standard deviation below its average. CTAs sold roughly $30 billion of equities while the market went nowhere. The S&P 500’s forward P/E fell from 22 to 19. Valuations and positioning had come down, but earnings estimates didn’t move. Analysts still expect S&P 500 EPS to grow 31.6% in 2026.

Chipmakers led the bounce on Thursday, with the SOX up about 3%. The same day, CrowdStrike, Palo Alto Networks and Okta were downgraded, yet the CIBR cybersecurity ETF closed at a record. Investors bought the bad news.

On Friday, Meta’s AI assistant Muse passed ChatGPT as the top free app in the US App Store.

Two things happened over the weekend. Saudi Arabia started shipping more crude out of the Persian Gulf on supertankers escorted by the US military. After US-China trade talks ended, Bessent called them “very successful” and said the two sides had set up a dialogue on AI. The trade truce was not formally extended.

The rally took off Monday as oil slid. WTI fell about 4.5%, and Brent dipped below $100 intraday for the first time since Sept. 9. The 10-year yield eased to around 4.95% from 5.01%. The Nasdaq Composite jumped 2.26% to a record close of 27,122. Meta rose 11.3%, Arm 17.2% and Intel 12.1%, and AMD’s market value topped $1 trillion for the first time.

Most coverage credited Muse for Monday’s gains, but the Russell 2000 rose just 0.52%. A market betting on a stronger economy would have pushed small caps higher. The biggest winners were long-duration assets, the ones most sensitive to rates. Cheaper oil lowered inflation expectations and pulled the 10-year back below 5%, which took pressure off valuations. Semis gain the most from that shift.

Other markets showed the same thing. Gold fell 0.9% while bitcoin rallied 7%. A bet on a weaker dollar would have lifted both. The market was pricing in less inflation risk, and bitcoin moved with the Nasdaq.

The indexes were little changed Tuesday, but stocks underneath moved in opposite directions. The Nasdaq added 0.45% to 27,244, a second straight record close, while the Dow slipped 0.36%. The SOX gained another 2.06%. Anthropic and OpenAI both released cheaper frontier models. Investors read that as more inference demand, not less demand for hardware.

Oil fell for a fifth straight day Tuesday, with WTI down 2%, but some of the news behind the drop is shaky. Trump publicly backed a ban on diesel exports, and Bessent confirmed the administration is studying whether it’s workable. Brent put volume hit a record. Fed officials are still hawkish.

Connect the dots:

The Fed hit peak hawkishness last Wednesday. The market answered with a chip rebound on Thursday and broke out Monday on falling oil. By Tuesday it was sorting winners from losers within the AI trade. This is the existing uptrend picking back up after a correction, not a new bull market. We were never in a bear market, and the rally hasn’t broadened. Breadth within semiconductors is the strongest since April, while breadth across the broader market is at an extreme low.

Oil sets yields, yields set valuations, and valuations set how far semis can go. The White House has every reason to push oil lower before the midterms, but that doesn’t mean it can.

Falling inflation expectations and lower rates are holding this rally up, and an oil rebound would hit both. For gains to spread beyond tech, three things need to happen:

• PCE cools on Sept. 30
• Oil keeps falling
• Washington and Beijing agree to extend the truce before Nov. 10

None has happened yet.

Until they do, semis should keep leading and the Nasdaq should keep beating the S&P 500.

Stay long compute and the companies that gain as AI agents plug into their platforms. Avoid middlemen that profit from transaction friction. Watch the 10-year yield and oil.

This week brings the PMIs and University of Michigan inflation expectations. Micron reports at the end of the month. Consensus is already above management’s guidance, so results that only match guidance would be a miss.

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