August market update

“Imperfect understanding is often more dangerous than ignorance.”– Newt Scamander, from Fantastic Beasts and Where to Find Them

As information has grown, and the barriers to distributing that information have fallen to near zero, the amount of noise that gets confused as a signal has grown as well. This is particularly true for financial markets. Only decades ago, nearly all investors were ignorant about corporate earnings from quarter-to-quarter, even Wall Street. Information was not instantly available to everyone with the internet. More information is undeniably a net positive for investment markets, not to mention society, but investors take for granted that more information doesn’t inherently mean better decisions. In fact, it becomes easier to rationalize complex topics into a seemingly simple set of potential outcomes using “supporting” data. In behavioral economics, this is called confirmation bias. Where people seek out data that “confirms” an opinion they already had. Recent U.S. corporate earnings, particularly from Big Tech companies, are providing ample “evidence” to support all sorts of bull and bear opinions. Investors should be careful not to overreact to such simplistic assertions. A nuanced look at recent corporate earnings shows a reality still tilted more towards optimism than pessimism.

S&P 500 Companies On Pace For 5th Highest Quarterly Earnings Growth Rate Since 2000

It would take a few pages to fully explain the positive corporate earnings news recently. Regardless, it is safe to say that the current earnings season warrants the “blockbuster” descriptor that some have given it. It is not just Big Tech/AI that are driving earnings growth. Both big banks and energy companies, two of America’s other powerhouse industries, have never been this profitable. So far this quarter, nearly 86% of S&P 500 companies have reported earnings above estimates. Since the turn of the century, every quarterly earnings growth that exceeded this quarter’s +50% growth rate came after a recession. This one didn’t. Even the magnitude of the earnings surprises (above estimates) exceed the long-term average. The unprecedented capital expenditure needed for the AI buildout is clearly spreading throughout the economy.

Despite the earnings backdrop, critics are quick to point out the risks under the surface. Big Tech companies have massive upcoming spending commitments, and a lot of those future costs aren’t showing up on company balance sheets due to creative financing. Additionally, a big chunk of the recent U.S. earnings growth has been inflated by one-time mark ups in the value of private companies owned by tech companies (mainly Amazon and Alphabet) and tariff refunds, rather than revenue growth. But even without the impact of Amazon and Alphabet’s “other income,” S&P 500 earnings growth for the quarter would still be well above average at +32%. Overall, the positives with recent earnings are widespread, but the potential risks are mainly focused on the Big Tech giants and their race for AI dominance. That is a notable risk, given their size relative to the U.S. economy, but AI is not going anywhere. It will go through growing pains like any other nascent industry has before it. The true risk for investors is thinking they can accurately guess where the puck is going with regards to investment returns resulting from the AI buildout. It is tempting, but a risky proposition, nonetheless.

Relative to the equity market, which has continued to show resilience, the U.S. bond market is still trying to find it’s footing after one of fastest interest rate hiking cycles in decades in 2022. Until inflation and/or fiscal spending slows, the longer-term end of the U.S. Treasury yield curve may continue to be volatile. We saw an example of that last week with Treasury Secretary Scott Bessent’s Treasury Bond buyback announcement. Bessent’s mentor, Stanley Druckenmiller, responded that the Treasury’s plan just delays and obfuscates the issues the market is trying to warn the U.S. government about regarding spending. Druckenmiller is not wrong, in theory at least, but it is clearly getting harder to separate the signal from the noise. For better or worse, the flow of economic/corporate data might get less noisy in the future.

Newly appointed Federal Reserve (Fed) Chairman Kevin Warsh recently announced that the Fed is doing away with the forward “dot-plot” guidance after every Federal Reserve Open Market Committee (FOMC) meeting, which was created to give financial markets a better understanding of where each of the FOMC members stood on the potential for future interest rate hikes/cuts. Many who believe too much forecasting has caused real damage have applauded the move. Like anything in finance and economics, though, there are no solutions. Only trade-offs. New Fed leadership is signaling that the forward guidance trade-off isn’t worth it anymore. Or never was, depending on who you ask. The move leaves Wall Street without the anchor that they have become addicted to for over a decade. That may happen with corporate earnings too if companies begin to forgo quarterly earnings in favor of semi-annual reports, which was recently proposed.

Wall Street has grown fond of this frequency of information. Any material changes to this flow will likely result in added market volatility as Wall Street adjusts to the new normal. For long-term focused investors, this shouldn’t matter. In the long term, investment markets broadly correlate to underlying economic growth. In the short term, markets get euphoric and despondent based on emotions. Those emotions present significant risks for investors who can’t control them, but opportunities for those who can. Investors should avoid the pretense of fully understanding what counts as a signal, instead focusing on a diversified portfolio to mitigate emotional risks inherent with the noise of higher market volatility.

Market Index Performance: As of July 31, 2026

DISCLAIMERS- intellicents investment solutions, inc., has exercised reasonable professional care in the preparation of this material. We cannot, however, guarantee the accuracy of all information contained herein. Indices are unmanaged and are not available for direct investment. Past performance is not a guarantee of future results. Investment advisory services offered through intellicents investment solutions, inc., an SEC registered investment adviser. The BloombergBarclays Capital Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Municipal bonds, and Treasury Inflation-Protected Securities are excluded from the index. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in U.S. The Barclays Capital Aggregate Bond Index is an intermediate term index. The MSCI All Country World Index – Ex U.S. is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world (except the United States). The MSCI ACWI – Ex U.S. is maintained by Morgan Stanley Capital International and is comprised of stocks from both developed and emerging markets. The Russell 2000 Index measures the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for U.S. small-cap stocks. The S&P 500 Index is comprised of 500 stocks chosen for market size, liquidity, and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. S&P 500 is a market value-weighted index - each stock's weight is proportionate to its market value.