Fed's Dovish Tone and Strong Earnings Keep US Stocks Attractive – July 2026 Deep Dive

On July 29, 2026, global financial markets reached a critical turning point. Federal Reserve Chair Jerome Powell clearly stated in his latest speech that inflation has made substantial progress and the likelihood of a rate cut within the year is rising. This dovish shift immediately ignited bullish enthusiasm for US stocks. By the close, the Dow Jones Industrial Average surged 1.8%, the S&P 500 climbed 2.3%, and the Nasdaq Composite soared 2.7%, with financial, technology, and consumer sectors all advancing broadly.

Fed Policy Shift: Improved Liquidity Expectations Boost Risk Appetite

At the press conference following the July Federal Open Market Committee (FOMC) meeting, Powell noted that while the labor market remains tight, the core PCE price index has fallen from 3.2% in March to 2.6%, approaching the 2% target. He hinted that if economic data continues to moderate, the September meeting could open a window for rate cuts. This statement closely aligns with market expectations; the CME FedWatch Tool shows the probability of a 25-basis-point rate cut in September has risen to 78%.

Improved liquidity expectations are the core driver behind the recent US stock rally. Historical data shows that the Fed's shift to an easing cycle is typically accompanied by valuation expansion in US stocks. For example, in the 12 months after the start of the 2019 rate-cutting cycle, the S&P 500 rose 15.2%. Current market sentiment is similar, with investors shifting funds from cash-like assets to equities. Morgan Stanley strategist Michael Wilson wrote in his latest report: "The Fed's dovish signal removes the market's biggest uncertainty, and the momentum of capital returning to US stocks is just beginning."

Strong Fundamentals: Q2 GDP Beats Expectations, Corporate Earnings Shine

Beyond monetary policy factors, the resilience of the US economy's fundamentals provides solid support for US stocks. Data released by the US Commerce Department on the same day showed that the annualized quarterly growth rate of real GDP in the second quarter of 2026 came in at 3.1%, significantly above the expected 2.5% and the first quarter's 1.8%. Consumer spending, business investment, and government spending all contributed, indicating that the economy's expansion momentum remains robust.

On corporate earnings, as of July 29, 65% of S&P 500 components have reported second-quarter results, with 72% of companies exceeding analysts' earnings per share (EPS) expectations. Tech giants performed particularly well: Microsoft revenue grew 18% year-over-year, and Azure cloud business growth returned to 30%; Alphabet, Google's parent company, saw ad revenue beat expectations with net profit up 21%; Amazon's AWS business margin hit a record high. Meanwhile, traditional sectors such as healthcare and finance also showed steady growth, with Johnson & Johnson and JPMorgan Chase both reporting earnings above market expectations.

Strong fundamentals mean US stock valuations are not in an extreme bubble. The S&P 500's 12-month forward P/E ratio is currently about 22 times, slightly above the historical median, but given falling interest rates and upward earnings revisions, this valuation level remains attractive. Goldman Sachs Chief US Equity Strategist David Kostin noted: "If rate cuts materialize and earnings continue to be revised upward, the S&P 500 could challenge 6,200 points by year-end."

Dividends and Buybacks: US Stocks' Unique Shareholder Return Mechanism

For long-term investors, the dividend and stock buyback mechanisms of US stocks are advantages seldom matched by other markets. In the first half of 2026, S&P 500 component companies repurchased a total of $438 billion in stock, up 15% year-over-year; cash dividends totaled $270 billion, up 8% year-over-year. Management typically uses buybacks to boost EPS while sending a confidence signal to the market.

For example, Apple had spent $95 billion on stock buybacks in its fiscal year 2026 as of July 29 and announced a 4% increase in its quarterly dividend. Tech giants like Microsoft, Google, and Meta also maintain large-scale buyback programs. This shareholder return culture not only stabilizes stock prices but also reduces volatility. The S&P 500's 3-year annualized volatility is only 12.5%, far lower than the 18.3% of the emerging market index.

Diversified Investment Tools: ETFs and Derivatives Lower Barriers

The development of modern financial instruments has greatly lowered the barrier for individual investors to participate in US stocks. As of June 2026, the US ETF market had surpassed $9.5 trillion in size, covering indices, sectors, themes, leveraged inverse, and other strategies. Investors can achieve diversified allocation with just one S&P 500 index ETF (such as SPY or VOO), with an annual management fee as low as 0.03%.

In addition, derivatives markets such as options and futures offer abundant risk management choices. Data from the Chicago Board Options Exchange (CBOE) shows that the average daily volume of US stock options in the second quarter of 2026 reached 45 million contracts, up 12% year-over-year. Investors can use strategies like covered calls and protective puts to enhance returns or hedge downside risk.

Risk Warning: Watch for Geopolitical Events and Inflation Tail

Although US stocks currently have obvious advantages, investors should still be alert to potential risks. First, geopolitical tensions could impact global supply chains, especially volatility in Middle East oil prices that might push up inflation expectations. Second, if the labor market remains overheated, wage increases could feed into service prices, causing the pace of rate cuts to be slower than expected. Third, US stock valuations may face short-term pullbacks after rapid rises; technical indicators show the S&P 500's RSI is close to 70, an overbought zone.

However, from a long-term perspective, the advantages of US stocks in terms of sound institutions, ample liquidity, and corporate innovation have not fundamentally changed. For Southeast Asian investors, especially those in Thailand, allocating to US stocks through QFII or cross-border channels not only allows them to share in the growth dividends of global leading companies but also effectively diversifies country-specific risks of a single market.

Conclusion

The market performance on July 29, 2026, once again confirms a fact: the attractiveness of US stocks stems from the multi-layered resonance of policy, fundamentals, and shareholder returns. With the Fed turning accommodative and corporate earnings beating expectations, US stocks remain an irreplaceable core component of global asset allocation. Investors may consider adopting a long-term perspective, gradually building positions amid volatility to capture the certainty of US stocks' long-term upward gains.