For now, the market has rolled “mission accomplished” and “everything is awesome” into one extraordinary session. Oil crashed, bonds rallied, the dollar softened, gained, and equities ripped to records.
Takeaways
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The prospect of a Hormuz agreement sent oil tumbling, yields lower and the and to record highs.
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The rally broadened beyond MegaCap technology as lower energy prices loosened financial conditions across the market.
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Cleaner positioning and July’s forced de-risking supplied the fuel for one of the largest four-day short squeezes since late 2025.
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The roadmap remains higher, but the speed of the reversal from one-month lows to record territory suggests FOMO is now running ahead of confirmation.
The Ubiquitous Melt-Up
The most basic market reaction function of this cycle has returned with a vengeance: oil down, yields down, financial conditions easier and stocks up.
Hopes that Washington and Tehran could reach an interim agreement to reopen the Strait of Hormuz sent below $80, pulled Treasury yields lower and carried both the S&P 500 and the Dow Jones Industrial Average to fresh records. The surged more than 3%, while semiconductor shares completed their strongest four-day rally since 2020.
Treasury Secretary Scott Bessent supplied the spark by suggesting that an agreement could arrive within a day or two. Qatar subsequently confirmed that draft language was circulating between the parties, although officials cautioned that no final agreement had been reached. The oil market did not wait for the ink.
dropped almost 6%, while Brent fell below $80 as traders rapidly reduced the geopolitical premium embedded in crude. The proposed arrangement appears designed to deal first with the immediate blockage of Hormuz while leaving the nuclear question and the broader architecture of the conflict for another day. Equities were interested mainly in the first-order implication: a greater probability that Gulf energy flows resume without a major new round of American airstrikes.
The result was the return of the ubiquitous melt-up. Wall Street moved from one-month lows to record highs in just five trading sessions. Or, as one veteran volatility trader rather colourfully described the shift, “the market went from GTFO to full FOMO in four days.”
That is not merely a geopolitical rally. It is the product of a market that had already been stripped of considerable leverage during July’s momentum washout. Hedge funds reduced risk, leveraged ETF exposure was flushed out, and investors aggressively cut positions in semiconductors and the most crowded AI trades. Once oil began falling and yields followed, that cleaner positioning became a launchpad rather than a restraint.
The short squeeze did the rest. July’s de-risking left many investors either outright short or simply carrying much less equity exposure than they wanted. When the macro backdrop suddenly improved, they were forced to buy back those positions quickly. That buying pushed prices higher, which forced still more investors to chase the move.
The four-day squeeze was among the largest since late 2025, while the options market once again moved into the combustible spot-up, volatility-up configuration. Normally, implied volatility falls when equities rise because investors feel less need to pay for protection. This time, volatility rose alongside the market because traders were aggressively buying upside options. In other words, they were not simply becoming less fearful. They were paying up to avoid missing the rally.
That is a much more powerful FOMO signal. Demand for short-dated S&P 500 and Nasdaq calls surged after investors had spent most of July preparing for another leg lower. Put-call skew also collapsed, meaning the premium investors were willing to pay for downside protection fell sharply relative to the price of upside exposure. Fear did not merely retreat. It was rapidly replaced by the fear of being left behind.
Goldman’s trading desk pointed to cleaner positioning, improved technicals, more reasonable valuations and stronger post-earnings confidence in AI-related returns on invested capital. Those ingredients explain why the initial rebound found traction. They do not entirely explain why it became a stampede.
provided the next test of that enthusiasm after the close. Its first earnings report as a public company delivered a wide revenue beat, driven by continued Starlink growth and a sharp increase in AI infrastructure revenue. Connectivity remained the only profitable segment, while Starship and AI continued to consume enormous amounts of capital, leaving investors to decide whether the growth justified the spending.
My read is that earnings could launch a powerful reflex rally precisely because bearish positioning has become so extreme. Yet the first bounce should not automatically be confused with the end of the post-IPO reset. The unlock remains unresolved, the capital requirements remain enormous, and investors still lack a sufficiently detailed bridge between today’s spending and tomorrow’s free cash flow.
SpaceX does not need to promise another trip to the moon tonight.
The initial reaction captured the tension perfectly. Shares first rose before slipping into negative territory as investors worked through the numbers, despite quarterly revenue of roughly $7.8 billion across connectivity, AI and space. Starlink remained the engine, producing $4.3 billion in revenue and reaching 12 million subscribers, while the AI segment generated almost $2.6 billion but required nearly $15.8 billion of capital expenditure.
That does not undermine the broader AI narrative, but it does raise the hurdle. In a market moving from liquidation to euphoria at record speed, investors are no longer satisfied with growth alone. They also want operating leverage, visibility and evidence that the extraordinary capital spending can eventually generate equally extraordinary returns.
What changed on Tuesday was the breadth. Unlike the previous session, when gains were concentrated heavily in MegaCap technology, the advance spread through the equal-weight S&P 500, industrials and other cyclical areas.
The equal-weight index gives every S&P 500 company the same influence, rather than allowing the largest technology companies to dominate the result. Its advance therefore showed that the rally was spreading beyond the handful of giant AI and technology stocks that had carried much of the initial rebound.
Falling oil was central to that broadening. Lower energy prices reduce the immediate inflation burden on households and companies. They also make it easier for bond yields to fall and reduce the perceived need for further Federal Reserve tightening. That combination loosens financial conditions: borrowing becomes cheaper, credit markets become more accommodating, equity values rise and businesses gain greater confidence to invest and spend.
That is the roadmap-up argument in its cleanest form.
Energy-related inflation is unlikely to normalize overnight. The physical oil market remains tight, the Brent curve remains backwardated and rebuilding depleted inventories will take time. Backwardation means that oil available for immediate delivery is still priced above barrels delivered later. It is a sign that the physical market remains tight today, even while futures traders are betting that supply conditions will improve as Hormuz reopens.
Ukraine’s continued attacks on Russian energy infrastructure also provide a reminder that geopolitical supply risk has not disappeared simply because traders sold Tuesday’s headline. Still, markets price changes at the margin.
A move from potential escalation toward a partial reopening of Hormuz reduces the probability of the ugliest inflation outcome. That was enough to push expectations for additional Federal Reserve tightening lower and pull Treasury yields down across the curve.
The June JOLTS report provided an almost perfectly convenient macro backdrop. Job openings eased, but hiring increased slightly and layoffs remained contained. It was neither strong enough to reignite immediate tightening fears nor weak enough to suggest the economy was falling through the floor—a sufficiently Goldilocks reading for a market already looking for permission to chase.
My instinct is that the market has now rediscovered its favourite narrative: economic growth remains intact, corporate earnings are holding up, the AI capital-expenditure cycle is producing visible revenue, and lower oil can take just enough pressure off inflation to prevent the long end of the Treasury market from spoiling the party.
That is a powerful combination, but it is also one the market has embraced remarkably quickly. The S&P 500 excluding the major AI themes barely participated in the first phase of the recovery. Meanwhile, the largest technology names added trillions of dollars in aggregate market capitalization in only a few sessions. Momentum strategies rebounded more than 20% from their lows, and MegaCap technology returned to record territory almost as quickly as it had been abandoned.
This is why I would separate the roadmap from the speed limit. The roadmap remains higher. Cleaner positioning, solid earnings, falling oil and easier financial conditions provide credible support for the advance. The speed limit is another matter.
A market that travels from forced liquidation to record highs in five sessions is no longer simply discounting better fundamentals. It is also pricing fear of being left behind.
That does not mean the rally must immediately reverse. Melt-ups frequently last longer than sensible positioning suggests because every shallow pullback creates another opportunity for underinvested managers to add risk. But spot rising alongside volatility, collapsing put skew and frantic demand for short-dated upside are signs that the chase has moved beyond a conventional relief rally.
For now, the market has rolled “mission accomplished” and “everything is awesome” into one extraordinary session. Oil crashed, bonds rallied, the dollar softened, gold gained, and equities ripped to records.
The Hormuz deal does not need to solve every problem. It merely needs to keep the oil market moving lower and the financial-conditions channel open. That is enough to keep the roadmap pointed up.
Whether the market can continue travelling at this speed—and whether earnings can keep clearing a rapidly rising bar—will determine how far the ubiquitous melt-up can run.
More on SpaceX later…