If you’ve checked your portfolio in August, you’ve probably noticed the market has had some very good days recently. That’s not an accident. Behind the headlines about record highs is a much simpler story: American companies are making a lot more money than expected, and investors are rewarding them for it. 

A Standout Earnings Season 

Second-quarter earnings season is now largely in the books, and the numbers have been remarkable. With the vast majority of S&P 500 companies having reported, the index is on pace for blended year-over-year earnings growth in the neighbourhood of 50%. According to FactSet, this is the fastest pace of profit growth since the post-pandemic rebound of 2021. 

Even when you strip out a couple of unusually large one-time gains at Alphabet and Amazon, underlying growth still comes in above 30%, marking the second straight quarter of growth above 25% and the seventh consecutive quarter of double-digit earnings gains. That’s not a one-quarter fluke; it’s a sustained trend of companies consistently beating what analysts expected of them. 

Why Earnings Move Markets 

Stock prices are, at their core, a reflection of expected future profits. When companies report earnings that come meaningfully above what analysts and investors had priced in, it forces a reassessment: to put it simply, a company that is earning more should be worth more. Multiply that dynamic across hundreds of large companies reporting strong results in the same window, and you get the kind of broad-based rally we’ve seen recently. 

Earlier this month, the S&P 500 posted one of its best days of the year, climbing nearly 2% to close above 7,700 for the first time, a fresh all-time high that took out its previous peak from June. The Dow closed above 54,000 for the first time ever, and the Nasdaq surged as well. Strong earnings from major companies, combined with easing geopolitical tensions and a pullback in oil prices, gave investors several reasons to buy at once. 

What’s Driving the Strength 

A few themes stand out this earnings season: 

• Technology and artificial intelligence (AI) infrastructure spending has been a major contributor, with several large tech companies posting outsized beats tied to cloud computing and AI demand. 

• Energy companies benefited from higher oil prices earlier in the quarter, while easing energy costs more recently have helped consumer-facing businesses.

• Broadening participation—while mega-cap tech has led the charge, strength has also shown in sectors like communication services and select industrials, suggesting the rally isn’t resting entirely on a handful of stocks. 

Things to Consider  

It’s worth remembering that strong earnings and a rising market don’t eliminate risk. Expectations are now quite high heading into the back half of the year, and history shows that August through October tends to be a seasonally softer stretch for stocks. Valuations in some corners of the market, particularly AI-related names, have become a more frequent topic of debate among strategists. 

None of this means the rally is unfounded. Real earnings growth, not just optimism, is doing the heavy lifting this year. But as always, a diversified, long-term approach remains the best way to participate in strong periods like this one while staying protected against the inevitable bumps along the way. 

If you’d like to talk through what this earnings season means for your specific portfolio and goals, we’re always happy to have that conversation. 

This commentary is for informational purposes only and does not constitute investment advice. Please speak with your advisor to discuss how these themes apply to your individual financial situation.