Published August 7 2026
This week the S&P 500 resumed its push into new high ground. Our friends at Delta Research provide, below, what brought that renewal:
“For the past two and a half months, the S&P 500 was trapped in a trading range as we had an on-again, off-again war, seesawing oil prices, gyrating interest rates, and the forced liquidation of a $45 billion AI hedge fund, Situational Awareness, in July. The bull market had temporarily lost its upward momentum.
Have no fear, super earnings are here. FactSet reports that S&P 500 earnings for the second quarter are up 50.1% year-on-year with profit margins approaching 17%. Even if we exclude private equity holdings and other passive income from the largest technology firms, S&P 500 earnings are still up 28%. At the end of the first quarter, the projected second-quarter earnings growth rate was 18.3%. This is now the seventh consecutive quarter of double-digit earnings growth. While technology dominates the earnings story, the median Russell 3000 stock is expected to grow earnings a solid 14% year-over-year.
On earnings strength, better news on SOH (on the margin), and the resolution of the hedge fund leverage issue, the S&P 500 and Dow Jones Industrial Average reached new highs this week.
AI infrastructure names, including Microsoft, Amazon and Alphabet, are driving roughly one-third of total earnings growth. At the same time, many of these companies (the hyperscalers or the largest cloud computing and data center companies) are scaling up capital expenditure plans. Hyperscaler capex is expected to reach $1 trillion in 2027.
Rather than “trickling down”, these expenditures are being “blown out” into the broader economy, benefiting a wide array of companies from infrastructure providers to equipment manufacturers to power generation companies. This helps explain the broadening in stock performance with the equal-weighted S&P 500 index outperforming the market-cap weighted S&P 500 index year-to-date. Nearly two-thirds of S&P 500 companies have beaten consensus EPS estimates this quarter, one of the highest rates on record.
The key concern about the AI investment super-cycle is that return on investment (ROI) may disappoint. This is a legitimate concern as capital spending booms do not always end well. But this quarter, Amazon, Microsoft, and Alphabet did more than deliver spectacular earnings; they provided concrete reassurance that the ROI on AI investment looks promising.
Andy Jassy, President and CEO of Amazon, said on the earnings call: “In fact, the demand we already have for 2028 is striking. And remember, enterprises are still very early in using inference at scale in their current production applications. We long believed AWS could become a few $100 billion revenue business, and now believe it will be at least double that and very possibly be $1 trillion annual revenue business for us in time with very appealing accompanying free cash flow and return on invested capital.” His comments were mirrored by cloud and data center competitors and supported by significant revenue upside in the current quarter.
Over time, stock prices follow earnings.”
Market Update
Investors kicked off a new month of August with a solid rally Monday. The Nasdaq rose +2% as momentum in tech shares carried over from Friday’s earnings-driven move. Oil prices dropped back to add to the buying fever. An even bigger push higher for stocks Tuesday with the Nasdaq surging another +2.5% as investors signaled growing confidence in a breakthrough to reopen the Strait of Hormuz. Oil prices took another jump downward while powerful earnings from Caterpillar and defense/software company Palantir added fuel to the rally. A split market Wednesday with earnings from semiconductor maker AMD and newly public SpaceX failing to impress. Those companies led the Nasdaq down -0.8% while the Dow Industrials posted a gain to continue marching into new high ground. Lack of a concrete deal out of the Iran talks pushed investors back to a more cautious mood Thursday leaving the Dow Industrials down while the other indexes ran flat on the day. A soft monthly jobs report brought buyers back into stocks Friday. The Nasdaq pushed higher +1.2%. Solid earnings from a couple of software firms along with a good report from Airbnb helped keep the mood upbeat.
Stocks moved strongly higher this week as the July correction in tech stocks appeared to be complete. The S&P 500 broke out of a two-month trading range with a +3.51% advance to new highs. The Nasdaq recovered July’s swoon with a +5.09% surge. Small caps broke out of a five-week downtrend with a +3.56% gain to new highs.
Warm wishes and until next week.