By Jack Kraft, CFA, Vice President, Investment Strategist
Stocks continued further into record territory last week amid strong earnings from corporates and positive trade-policy updates. The Dow Jones Industrial Average rose approximately 1.4%, while the S&P 500 gained 2.4%. The Nasdaq Composite outperformed, climbing 3.9% over the course of the week.
Eight of 11 S&P 500 sectors ended the week in positive territory, with energy, health care and real estate unable to keep pace. Leading returns were the consumer discretionary and technology sectors, with the latter lifted by shares of Apple, jumping 13% as the iPhone maker announced plans to invest $600 billion in the United States. This helped resolve the tariff overhang that had been weighing on the stock amid news of exemption of the 100% semiconductor tariff.
Economic data and Treasury yields also caught the attention of investors, with the U.S. services Purchasing Managers Index (PMI) rising to a new high of 55.7 in July. This was above the previous reading of 55.2 (prints above 50 indicate expansionary territory). Elsewhere, the Institute for Supply Management (ISM) services index trended lower to 50.1, barely holding above the 50.0 expansionary level. Overall, the trajectory of the services sector, accounting for a significant portion of U.S. gross domestic product (roughly 70%), is showing signs of slowing and is worth monitoring in the months ahead and into year-end. However, several potential tailwinds do offer support for economic growth in 2026, such as fiscal stimulus, easing monetary policy and deregulation. Elsewhere, the 10-year Treasury yield rose by about 9 basis points on the week to 4.29%, as fiscal deficit concerns continued to weigh on Treasury auction demand for 10-year and 30-year bonds.
An area of focus last week was the second-quarter earnings season as the S&P 500 nears the end of its reporting season. So far, roughly 90% of S&P 500 companies have issued profit reports, with 81% beating earnings-per-share estimates, above the five-year average of 79%. Additionally, earnings growth is on pace for 11.8% year-over-year growth, much higher than the 4% forecasted by analysts coming into the quarter. Two bright spots out of this quarter’s earnings season are that tariffs are not weighing on profit margins as much as expected, and there has been an 87% decline in S&P 500 companies citing “recession” on earnings calls compared to the prior quarter. In short, companies have been able to absorb the impact of tariffs by pulling four main levers—negotiating with suppliers, shifting supply chains, passing through prices and reducing costs.
Although beat rates on the top and bottom line have been abundant in the second quarter, the market has been less rewarding than typical. In short, companies that are beating analysts’ estimates are seeing shares increase by less than average, while companies missing expectations have been getting punished more than normal. The average performance of all stocks after earnings reports is actually down -0.3%, despite earnings coming in 7.0% higher than expected. Equity investors have been looking for companies to raise guidance in part due to the higher-than-average valuation of stocks, which rank above the 95th percentile of expensiveness, according to Goldman Sachs.
Pockets of the market are seeing much better performance than others as investors lean into certain themes such as artificial intelligence (AI), mega caps, and industrials over defensives and small-caps. The accelerated spend on capital expenditures from hyperscalers (Oracle, Meta Platforms, Google, Amazon and Microsoft) this earnings season has boosted optimism in stocks connected to the AI theme. In fact, trailing 12-month capital expenditure has risen 140% to $215 billion across these five companies. This especially has been a tailwind for “AI picks and shovels,” which include companies in the industrials, utilities and data center space.
Concentration of the S&P 500 mega-cap technology names has begun regaining attention this year as Nvidia and Microsoft surpassed the $4 trillion dollar market-cap threshold. Currently, the technology sector makes up 34.5% of the S&P 500 index, which is near record highs not seen since the Dot Com Bubble in early 2000. The large weighting can be attributed to the Magnificent Seven stocks (Apple, Amazon, Meta Platforms, Microsoft, Alphabet, Nvidia and Tesla) which make up nearly 35% of the index. However, if you take out these names and look at the remaining 493 constituents, technology actually drops to the second-largest sector behind financials, with a weighting of 21.1%, according to Bespoke Investment Group.
Notably, the weight of the largest 10 companies in the S&P 500 have been increasing at faster rates than their earnings. This is typically a recipe for a volatile ending if earnings slow and send investors rushing for the exits. It is easy to say “this time is different,” citing the golden age of artificial intelligence as justification. However, market history has shown that when concentration of the top 10 equities is more than 23.4%, the bottom 490 companies outperformed 91% of the time over the next five years, according to Hartford Funds. This study was cited by the Wall Street Journal last week, highlighting the diversification benefits that an equal-weighted index has over the traditional cap-weight index, such as the S&P 500.
Looking ahead, investors will have a busy week as earnings season continues to wrap up and key economic data is released. Highlighting the economic calendar will be Tuesday’s inflation update on the Consumer Price Index (CPI), which is forecasted to increase by 0.2% in July. Furthermore, the Producer Price Index (PPI), which shows input cost inflation, will be released on Thursday. These are key economic data points that the U.S. Federal Reserve is looking at ahead of the Federal Open Market Committee meeting on September 17, where the market is pricing in a 89% chance of a 25-basis-point rate cut. Other key releases include the NFIB Small Business Optimism Index, U.S. retail sales and a preliminary reading on consumer sentiment. On the earnings front, key reports will be issued by Cardinal Health, Cisco Systems, Applied Materials, Deere Co. and Tapestry.
Earnings Calendar Aug. 11 – Aug. 15
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, AUG. 11 | ||||
| None scheduled | ||||
| TUESDAY, AUG. 12 | ||||
| 6:00 AM | NFIB optimism index | July | 99 | 98.6 |
| 8:30 AM | Consumer price index | July | 0.20% | 0.30% |
| 8:30 AM | CPI year over year | 2.80% | 2.70% | |
| 8:30 AM | Core CPI | July | 0.30% | 0.20% |
| 8:30 AM | Core CPI year over year | 3.10% | 2.90% | |
| 10:00 AM | Richmond Fed President Tom Barkin speaks | |||
| 10:00 AM | Kansas City Fed President Jeff Schmid speech | |||
| 2:00 PM | Monthly U.S. federal budget | July | $227.7B | $244B |
| WEDNESDAY, AUG. 13 | ||||
| 8:00 AM | Richmond Fed President Tom Barkin speaks | |||
| 2:00 PM | Chicago Fed President Austan Goolsbee speaks | |||
| 12:30 PM | Atlanta Fed President Raphael Bostic speaks | |||
| THURSDAY, AUG. 14 | ||||
| 8:30 AM | Initial jobless claims | Aug. 9 | 229,000 | 226,000 |
| 8:30 AM | Producer price index | July | 0.20% | 0.00% |
| 8:30 AM | Core PPI | July | 0.30% | 0.00% |
| 8:30 AM | PPI year over year | — | 2.30% | |
| 8:30 AM | Core PPI year over year | — | 2.50% | |
| 2:00 PM | Richmond Fed President Tom Barkin speaks | |||
| FRIDAY, AUG. 15 | ||||
| 8:30 AM | U.S. retail sales | July | 0.50% | 0.60% |
| 8:30 AM | Retail sales minus autos | July | 0.30% | 0.50% |
| 8:30 AM | Empire State manufacturing survey | Aug. | 1.8 | 5.5 |
| 8:30 AM | Import price index | July | 0.00% | 0.10% |
| 8:30 AM | Import price index minus fuel | July | — | 0.10% |
| 9:15 AM | Industrial production | July | 0.00% | 0.30% |
| 9:15 AM | Capacity utilization | July | 77.60% | 77.60% |
| 10:00 AM | Business inventories | June | 0.20% | 0.00% |
| 10:00 AM | Consumer sentiment (prelim) | Aug. | 62.50% | 61.7 |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market