The start of August witnessed a shift in market momentum. The S&P 500, which had recorded six successive all-time highs, entered a four-day losing streak. The decline was caused by soft jobs data and rising unemployment, along with new tariffs announced by President Donald Trump targeting U.S. trading partners.
However, Morgan Stanley and Goldman Sachs believe that this could be an entry point to the market. Let’s delve a little deeper. SPDR S&P 500 ETF Trust SPY, which fell on Aug. 1, 2025, rebounded on Aug 4. The situation is the same for the tech-heavy Invesco QQQ Trust, Series 1 QQQ.
Buy the Dip Amid Market Volatility?
Investors should take advantage of the recent selloff in U.S. equities, said Morgan Stanley strategist Michael Wilson, due to a strong earnings outlook for the coming year, as quoted on Bloomberg.
Despite short-term headwinds like labor market weakness and inflationary pressures related to new tariffs, Wilson believes any market pullback represents a buying opportunity.
A "Rolling Recovery" Happening?
According to Wilson, signs of a gradual economic rebound are emerging. “The rolling recovery has begun as evidenced by our earnings revisions breadth analysis,” he wrote in a note on Monday.
Although the Federal Reserve stays put on the interest rate policy, Wilson expects fading inflation later this year, which, combined with labor market softness, will lead to a strong rate-cutting cycle.
Wilson also pointed to several structural tailwinds that could support equities going forward. These include continued AI adoption, a weakening U.S. dollar, and the likelihood of tax cuts.
Earnings Season Surpasses Expectations
Second-quarter earnings results have so far been strong. According to Bloomberg Intelligence, S&P 500 companies are on track to post a 9.1% increase in profits, topping analysts’ forecasts of just 2.8%. The percentage of firms topping earnings estimates is the highest seen in four years.
Goldman Sachs Bets on Big Tech
Goldman Sachs strategist David Kostin also offered a relatively optimistic tone, as quoted on Bloomberg. He did note that company executives have so far expressed confidence in their ability to manage the impact of tariffs on profits.
However, while Kostin believes that revenue growth may face increased pressure in the second half of the year, he thinks earnings from mega-cap tech firms and supportive fiscal policies will buoy the market through 2026.
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Invesco QQQ (QQQ): ETF Research Reports SPDR S&P 500 ETF (SPY): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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