Investors Got Bruised, Then They Got Up. What Will They Get Next?

The mood on Wall Street feels a bit like discovering that nothing is broken after a hard fall.

U.S. stocks are near record highs to start the week, reflecting optimism about a range of topics that investors have had to ponder. The European Union and the U.S. struck a deal over the weekend, easing corporate anxiety of a protracted trade war. With some of that uncertainty cleared, and earnings so far coming on strong, some analysts are sounding more upbeat than they have for a while.

Oppenheimer on Monday lifted its year-end price target for the S&P 500 to 7100 from 5950, among the highest held by major Wall Street brokerage firms. The outlook—which brings its target back to where it was to start the year—implies upside of about 11% from Friday’s close. Morgan Stanley said the probability of its bull case, which puts the S&P 500 at 7200 in the middle of 2026, was firming up.

Numbers like those are a long way from the levels below 5000 seen in April after President Donald Trump’s “Liberation Day” tariff announcement spooked investors. The next few days will test that optimism.

“Although much uncertainty and worry prevailed for some time both with trade policy and geopolitical events, and given the multitude of potential outcomes, we’d note that cooler heads prevailed — leading to positive outcomes, at least for now,” Oppenheimer wrote.

Investors Turn to the Fed and Big Tech

The Federal Open Market Committee’s next decision on interest rates is due Wednesday, and Big Tech giants with a combined market capitalization of over $10 trillion are due to report earnings. Microsoft (MSFT) and Meta Platforms (META) will go on Wednesday, and Apple (AAPL) and Amazon.com (AMZN) on Thursday.

The Fed is unlikely to surprise. The market has set about a 2% probability of a cut in the federal funds rate come July 30, according to CME FedWatch. Ed Yardeni and William Pesek of Yardeni Research believe rates will remain unchanged, they wrote Monday, though they expect Fed Chair Jerome Powell’s post-decision press conference to be “relatively dovish,” raising the perceived odds of a September cut. (For now, they said, they’re in the “none-and-done camp” for 2025.)

S&P 500 companies on are track to report second-quarter year-over-year earnings growth of more than 6%, according to FactSet. The pressure is on the part of the Magnificent 7 posse reporting this week to surprise to the upside, either with their respective results or their outlooks, given how much weight they carry in the broad market index: Meta, Microsoft, and Nvidia (NVDA) have accounted for almost half of the S&P 500’s gain this year, according to data compiled by Bloomberg. Apple has dragged.

So far this reporting season, S&P 500 companies are showing “mixed results,” per FactSet’s John Butters. While the percentage of S&P companies surprising on the upside, 80%, is above five- and 10-year averages, the magnitude of those surprises remains below historical averages.

“The capitulatory price action and EPS estimate cuts we saw in April of this year around Liberation Day represented the end of a rolling earnings recession that began in 2022,” Morgan Stanley equity strategist Michael Wilson wrote in a note published Monday. “Now, we appear to be transitioning to a rolling recovery backdrop,” he said.