August provided another reminder that markets rarely move based on a single headline. Investors continued to navigate persistent inflation, higher interest rates, geopolitical uncertainty, concerns surrounding artificial intelligence spending, and growing attention around the federal debt. Yet markets remained resilient, supported by one of the strongest corporate earnings seasons in years.
Second-quarter S&P 500 earnings growth ultimately tracked above 50% year over year—far exceeding expectations entering the quarter. Earlier in August, strong earnings growth had allowed stock prices to rise while the S&P 500's forward valuation actually declined from roughly 26 times expected earnings at the beginning of the year to approximately 22 times.
At the same time, leadership underneath the market continued to change. Value, mid-cap, small-cap, international and emerging-market stocks all experienced periods of strength, reinforcing a theme we've discussed throughout 2026: there may be more opportunities beneath the surface than the performance of a few large technology companies would suggest.
As we enter the final four months of the year, investors are facing an unusual combination: strong corporate fundamentals alongside persistent inflation, higher borrowing costs and increasingly demanding valuations.
That makes discipline, diversification and staying invested as important as ever.
What Happened
- Markets moved higher despite another eventful month. U.S. equities continued to demonstrate resilience as strong corporate earnings helped offset concerns surrounding inflation, interest rates, oil prices and geopolitical developments. The S&P 500 entered August already up 12.6% for the year and near an all-time high.
- Corporate earnings significantly exceeded expectations. With 88% of S&P 500 companies reporting by mid-August, blended Q2 earnings growth was tracking at approximately 50.4% year over year, one of the strongest earnings seasons since the post-pandemic recovery.
- Market leadership continued to broaden. Value stocks, mid caps, small caps and international markets participated alongside large U.S. companies. At one point during August, 72% of S&P 500 companies were trading above their 200-day moving averages—the strongest reading since late 2024.
- Interest rates remained a major story. A 30-year Treasury auction produced a yield of 5.216%, the highest since 2001. Higher long-term yields have implications beyond bonds, affecting mortgage rates, corporate borrowing costs, stock valuations and the government's cost of financing its debt.
- Federal debt crossed another milestone. Total U.S. government debt surpassed $40 trillion. Approximately $8 trillion is intragovernmental debt, while roughly $32 trillion is held by the public. Although the numbers deserve attention, historical context matters: debt held by the public is approximately the size of annual U.S. GDP, below its post-World War II peak relative to the economy.
What We’re Watching
- The Federal Reserve – September's Fed meeting may be one of the most closely watched of the year. Inflation remains above the Fed's 2% target, while the labor market has shown signs of cooling. Chair Kevin Warsh's Jackson Hole remarks reinforced the Fed's focus on price stability, leaving investors debating whether the next move will be another rate hike or an extended pause. Current information entering September continues to show elevated inflation alongside uncertainty about the appropriate policy response.
- Long-Term Interest Rates – Even if the Fed leaves short-term rates unchanged, the bond market has increasingly been setting its own price for longer-term money. Inflation expectations, federal borrowing needs and investor demand for additional compensation to hold long-duration bonds are all contributing to higher yields. We'll be watching the 10- and 30-year Treasury markets closely because these rates ultimately influence mortgages, businesses, government borrowing and stock valuations.
- Corporate Earnings – Q2 set an exceptionally high bar. Strong earnings have been one of the most important reasons markets have remained resilient despite higher rates and geopolitical uncertainty. The question now becomes whether companies can continue growing profits fast enough to support current valuations.
- Market Leadership – The rotation beyond mega-cap technology remains one of the healthier developments we're watching. During the third quarter, value, mid-cap, small-cap, international and emerging-market investments have all experienced periods of stronger relative performance. Broader participation could provide additional support to the market if it continues.
- Artificial Intelligence Investment – AI remains one of the most significant long-term investment themes, but the conversation is increasingly shifting from excitement about AI to the economics behind it. We'll be watching capital spending, debt issuance, profitability and whether companies can ultimately generate sufficient returns on the enormous amount of capital being invested in AI infrastructure.
- Washington and the National Debt – Crossing $40 trillion in federal debt will understandably generate headlines. The U.S. has managed periods of high debt before, but long-term fiscal sustainability will increasingly depend on economic growth and greater discipline around government spending.
Investor Takeaway
Don't Let Your Politics Determine Your Portfolio
With midterm elections approaching, political headlines will become increasingly difficult to avoid.
That makes this a particularly important time to separate our political beliefs from our investment decisions.
One of the more interesting pieces of research we reviewed this month looked at how dramatically consumer sentiment changes based on which political party occupies the White House. People's perceptions of the economy can change substantially following an election—even when the underlying economic data has not changed nearly as quickly.
There is nothing wrong with having strong opinions about taxes, government spending, regulation, trade or the direction of the country. Those issues can have meaningful long-term economic consequences.
The mistake is allowing those opinions to determine whether we participate in the market.
Over the course of decades, investors have experienced Republican presidents, Democratic presidents, divided governments, unified governments, wars, recessions, inflation, financial crises and countless elections. Through all of them, American businesses continued innovating, earning profits and creating wealth.
Regardless of November's outcome, several underlying strengths of the U.S. economy will remain. The United States is still the world's largest economy, represents roughly half of global stock-market capitalization, issues the world's primary reserve currency and is the world's largest producer of crude oil and natural gas.
Why It Matters to Your Financial Plan
Your political views and your investment strategy serve two very different purposes.
One expresses what you believe.
The other is designed to help fund your retirement, support your family, create income and build a legacy.
Mixing the two can lead investors to move to cash, delay investing or dramatically change portfolios based on an election outcome—decisions that can have consequences long after the political cycle has changed.
Our preference remains the same: build portfolios around your goals, risk tolerance, time horizon and values—not around predictions about the next election.
Most importantly, stay invested.
A Datapoint Worth Discussing
Strong Earnings Are Helping Markets Grow Into Their Valuations
Source: FactSet, July 2026
At the beginning of 2026, the S&P 500 traded at approximately 26 times expected forward earnings—well above its longer-term averages. That understandably created concern that stocks had become too expensive.
But something interesting happened.
Stock prices rose—and the valuation multiple fell.
Why?
Earnings grew even faster.
Q1 S&P 500 earnings grew approximately 29% year over year, while Q2 earnings ultimately tracked around 50%. By early August, the S&P 500's forward P/E had declined from approximately 26x to 22x even as the market gained nearly 13%.
That's an excellent illustration of something we discussed last month: fundamentals matter.
High valuations don't necessarily require stock prices to fall to become more reasonable. Earnings can also grow into those valuations.
Long-Term Perspective
The Market Doesn't Care Who You Voted For
This month's Investor Takeaway also gives us an opportunity to reinforce one of the most important principles of long-term investing.
Markets don't require investors to agree with Washington.
They require businesses to continue producing goods and services, innovating, earning profits and creating value.
There will always be reasons to worry. Today it may be inflation, federal debt, artificial intelligence spending, the Middle East or November's elections. A few years from now, the list will be different.
The temptation is to wait until uncertainty disappears before investing.
The problem is that it never does.
Successful long-term investing requires accepting that uncertainty is part of the price investors pay for the opportunity to participate in economic growth. Staying diversified and remaining invested allows us to participate without needing to correctly predict every election, Federal Reserve decision or market headline.
Why It Matters to Your Financial Plan
Financial plans are generally built around goals measured in decades—not election cycles measured in years.
Retirement may last 20 or 30 years. Wealth intended for children or grandchildren may have an even longer time horizon.
Over those periods, there will inevitably be administrations and policies you support and others you don't. There will also be bull markets, bear markets, recessions and recoveries.
The objective isn't to predict all of them.
It's to build a financial plan capable of enduring them.
Stay diversified. Stay disciplined. Stay invested.
If you have any questions about your portfolio or how current market conditions may impact your plan, please don’t hesitate to reach out. We’re here to help.