Second-quarter reporting put the AI trade back at the centre of US equities after earlier worries about hyperscaler capex and free cash flow. The S&P 500 set fresh record highs, and JPMorgan raised its target to 8,000 for 2026 after lifting an earlier 7,600 call to 7,800 in June; the new level implies about 3% upside from last week\u2019s close. The index first cleared 5,000 in February 2024, after generative AI momentum built from the launch of OpenAI\u2019s ChatGPT large-language model in November 2022. Earlier in 2026, following the outbreak of war between the United States and Iran, the benchmark fell more than 8.5% into March and slid towards 6,300 as markets repriced inflation risks.<\/p>\n\n
Earnings detail helped to ease those concerns. Alphabet shares dropped 5% after it raised capex guidance to $195bn\u2013$205bn, a $15bn rise at the midpoint, while forecasts also point to Magnificent Seven spending on AI infrastructure accelerating towards $750 in 2026. Across the index, 86% of companies have beaten EPS expectations and 77% topped revenue forecasts; blended Q2 2026 earnings growth stands at 47.4% year on year, the strongest in almost five years. For Q3, earnings growth estimates rose from 14% in January to 21.7% recently, with revisions broadening beyond technology to energy and other cyclical sectors.<\/p>\n\n
As we head into September 2026, the S&P 500 is trading near record highs around 7,800, fueled by an outstanding 47.4% year-over-year earnings growth in the second quarter. With Wall Street raising its year-end targets to 8,000, we believe derivative traders should position themselves to capture this upward momentum. However, we must also prepare for short-term bumps given the historical patterns of the coming weeks.<\/p>\n\n
Historically, September is the most challenging month of the year for the S&P 500, averaging a decline of roughly 1.2% over the last several decades. We should view any seasonal dip over the coming weeks as a prime buying opportunity rather than a reason to panic. Using bull call spreads on the SPX with October or November expirations will allow us to limit risk while positioning for the march toward 8,000.<\/p>\n\n
With tech giants accelerating their AI infrastructure spending toward $750 billion this year, corporate fundamentals remain incredibly robust. Since Q3 earnings estimates have already been revised upward to 21.7%, we can expect implied volatility to rise as the next earnings season approaches. Selling out-of-the-money put options on mega-cap tech stocks is an excellent way to generate premium income during brief market pullbacks.<\/p>\n\n
While optimism is high, the lingering inflationary impacts of the earlier conflict in Iran remind us that volatility can return quickly. To hedge against sudden downside moves, we suggest keeping a portion of our portfolios in cheap, out-of-the-money protective put options. This balanced approach ensures we stay heavily exposed to the AI-driven upside while remaining protected against unexpected geopolitical shocks.<\/p>\n\n\n\n