Strong Earnings, Tougher Comparisons
More than 90% of companies have now reported second quarter earnings, giving us a clear picture of a remarkably strong earnings season. Earnings growth for the quarter has exceeded 50%, an exceptional level of growth by historical standards. Some of that growth has been influenced by unusual valuation changes tied to large companies’ investments in private businesses. Even after accounting for those factors, however, earnings growth remains above 30%, which is still a spectacular result. Strong corporate earnings have been an important reason the stock market has remained resilient despite the challenges and uncertainty surrounding a midterm election year. As we look toward the remainder of 2026, earnings will continue to be an important factor in determining whether that momentum can continue. The outlook becomes more complicated as we move into 2027. Companies will soon begin comparing results against an exceptionally strong earnings year, creating more difficult year-over-year comparisons. Expectations for 2027 earnings growth have already declined from approximately 17% to around 13%. Some of the strength anticipated for next year may have been pulled forward into 2026, which could make those comparisons even more important. Higher Treasury rates are another factor to monitor. While the current earnings environment remains encouraging, exceptionally strong results today can create a higher hurdle for companies to clear tomorrow.
CEO Confidence Remains Resilient
Corporate earnings are only one piece of the economic picture. CEO confidence is another important indicator because it provides insight into how business leaders view the economy and their companies’ prospects over the next 12 months. The latest CEO confidence readings turned slightly higher in August. More importantly, the outlook among surveyed CEOs remains positive across several key areas. CEOs expect profits, capital expenditures, hiring and revenues to increase over the next year. If those expectations are realized, that would create a constructive environment for continued market strength. That does not mean the outlook is without risks. Higher interest rates and political uncertainty surrounding the upcoming election could influence business decisions and corporate confidence. These indicators can change quickly, so continued monitoring is important. For now, however, CEOs generally appear to like what they are seeing.
The Bond Market Deserves Respect
While stocks and corporate earnings tend to receive most of the attention, the bond market is an equally important part of the market landscape. Recent developments involving the Federal Reserve and the U.S. Treasury have put renewed attention on Treasury yields. The Federal Reserve’s decision to step back from directly intervening in the bond market has raised questions about how interest rates will be determined when market participants have greater influence. Historically, the term “bond vigilantes” has been used to describe bond-market investors who exert pressure on policymakers through movements in interest rates. When rates rise significantly, those movements can serve as a signal that investors are concerned about government spending, deficits or other economic conditions. Recent Treasury activity adds another layer to that discussion. Treasury Secretary Scott Bessent indicated that the Treasury could increase its purchases of longer-term bonds by as much as $20 billion. This is different from Federal Reserve intervention because the Treasury is not creating new money in the same way the Fed does when it purchases bonds. Instead, the Treasury can issue shorter-term debt, such as three-month Treasury bills and other securities with maturities of less than one year, while purchasing longer-term debt. This approach can help place downward pressure on longer-term interest rates while allowing the Treasury to manage its funding needs through short-term issuance. The Treasury also has approximately $1 trillion in its Treasury General Account, providing significant resources that could potentially be used in managing these transactions. The larger question is what happens to the market’s ability to signal concerns about government deficits when policymakers intervene to limit increases in long-term interest rates. Rising rates can provide an important signal to Congress and the administration when investors believe fiscal conditions are becoming unsustainable. These developments are particularly notable as Congress remains on recess and attention begins shifting toward the 2026 midterm elections. Once Congress returns in September, markets are likely to place greater emphasis on the political and fiscal landscape. Trade policy has also returned to the headlines. Canada recently called off trade negotiations with the United States, resulting in a headline tariff rate of 50% on certain Canadian goods. The headline number is significant, but the underlying data provides important context. The United States imports roughly $450 billion in Canadian goods, yet only about $20 billion of those imports, or approximately 4.4%, would actually be subject to the tariffs in question. That distinction illustrates why it is important to look beyond headlines and examine the underlying data. The headline may attract attention, but the actual economic impact can be considerably smaller.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here
Ty Miller, AIF®
Vice President
Wealth Consultant
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
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