It all worked this week, didn’t it? My goodness.

When the dust settled after the first five trading sessions of August, multi-asset investors were left to gleefully survey what, depending on your allocation, was among the best stretches since the famous November-December 2023 “everything rally.”

Thanks in no small part to gold’s best week since January, a simple portfolio of US equities, long-end Treasurys, IG USD credit and barbarous relics, rose double-digits.

As the figure above illustrates, that was the best showing since Donald Trump “paused” his “Liberation Day” tariffs, and before that since late-2023, when Janet Yellen’s Treasury moved to placate a fidgety US bond market and Jerome Powell pivoted dovish.

Some of the move in equities was indicative of a burgeoning “force-in,” as discussed at some length here. The right-tail was heavily bid in the earliest of this month’s trading, which suggested some folks were under-exposed or anyway fearful of missing a new melt-up. Call skew went vertical, while skew and put skew collapsed.

SocGen’s Jitesh Kumar suggested “FOMO” might be a mischaracterization. It’s possible, he said this week, that “option markets [have] been mispricing upside risk” the whole time. The figure below shows you return distribution for big-cap US tech pre- and post-pandemic.

“The actual return distribution in equity markets has changed since COVID, with returns becoming more positively skewed and average gains increasing [but] the risk-neutral probability distribution implied by option prices has remained largely anchored to previous norms,” Kumar wrote, editorializing around the chart.

In the context of a market that’s been “too slow” in recognizing a structural shift in the return distribution, “recent moves in skew” make sense, he went on, and additional repricing in calls wouldn’t be “so surprising.” That’s food for thought in the presence of the skew extremes.

Anyway, both the Nasdaq 100 and the S&P had their best weeks since the April-May melt-up, the SOX rose almost 10% and the Mag7 nearly 5% (the vaunted septet’s up 13% since the late-June lows).

The recovery in the Mag7’s a big deal. As Nomura’s Charlie McElligott reminded investors this week, the main “problem” with the AI enablers / memory bottlenecks versus hyper-scalers market-neutral trade (which blew up in July) was that the hyper-scalers’ combined index weight meant “broad” equities couldn’t make a run at new highs. As such, the momentum unwind was in some sense a blessing for “dumb money” indexing-types.

The Mag7 correction’s nearly history. The group’s now just one good session from a new record. Looking specifically at the hyper-scalers, Microsoft’s +42% from the June lows, Amazon +21%. And at its best levels this week, Alphabet was +21% from its post-earnings intraday lows.

Note from the figure that the market leadership’s been stuck in a rut since the May melt-up. That goes a very long way mathematically towards explaining why we’re just now making new all-time highs on the S&P. Again: Broad equities can’t consistently register fresh records without the participation of the mega-caps.

This week’s rally on Wall Street came against a backdrop of blockbuster earnings growth both in aggregate and for the median company. Consensus expects more of the same going forward.

Specifically, company analysts collectively see S&P 500 EPS growing 26% again in Q3, and the median company growing the bottom line by nearly 10%.

If realized, the aggregate figure would mark a third consecutive quarter during which index earnings growth was 20% or better, and we’re not lapping recession comps.

As for the macro, the disappointing performance of the US labor market is good news for stocks until it isn’t. The poor July jobs report took a Fed hike off the table for September, and that’s something to cheer about if you’re an equity investor.

Finally, I should note that the wording of Scott Bessent’s quarterly refunding announcement this week contained a subtle, but potentially meaningful, tweak. He retained the language that promised no coupon auction size increases for the foreseeable future, but the guidance now says Treasury will “evaluate potential future changes to nominal coupon and FRN auction sizes, with a focus on trends in structural demand and potential costs and risks of various issuance profiles” (emphasis mine). In the May QRA, “changes” was “increases.”

“The shift could simply be a transition away from forward guidance, or it could be laying the groundwork for something as unexpected as lowering longer-dated coupon auction sizes,” BMO’s US rates team remarked. “A reduction is not our current expectation [but] the language technically implies a non-zero probability of auction cuts.”