The State of the Markets (August 2026)
View the video of this post here.
The State of the Markets in 10 Charts…
1) More Milestones, More All-Time Highs
The S&P 500 crossed above 7,700 this week for the first time, its 8th 100-point milestone of the year. A year ago it was at 6,300. 5 years ago it was at 4,400. 10 years ago it was at 2,200.
The S&P 500 closed at a record high yesterday for the first time since June 2, hitting its 25th all-time high of the year.
2) An Earnings Bonanza
S&P 500 Q2 earnings are on pace to rise 47% YoY, the highest growth rate since Q2 2021. We’ve never seen earnings growth this high outside of post-recessionary rebounds. This is an unprecedented bonanza fueled by massive EPS gains in big tech, including enormous markups in SpaceX/Anthropic.
3) Corporate America Has Never Been More Profitable
S&P 500 profit margins spiked to 16.7% in Q2, which is by far their highest level in history.
“Profit margins are probably the most mean-reverting series in finance, and if profit margins don’t mean revert, then something has gone badly wrong with capitalism. If high profits don’t attract competition, there’s something wrong with the system.” – Jeremy Grantham
4) The Iron Rule of Financial Markets
The S&P 500 finished the month of July close to where it started while Semiconductor stocks ($SOXX ETF) fell 21% and Memory stocks ($DRAM ETF) fell 32%. This follows the parabolic advance in these stocks which exceeded the run-up in early 2000.
“Reversion to the mean is the iron rule of the financial markets.” – John Bogle
5) The AI Arms Race Continues
Amazon, Google, Microsoft, and Meta spent a combined $165 billion on CapEx in Q2.
That’s an 87% increase from a year ago and a staggering 393% increase from three years ago.
The AI infrastructure arms race is still accelerating.
The US economy is becoming increasingly dependent on the AI infrastructure boom.
Nonresidential investment contributed 1.15 percentage points to Q2 Real GDP growth of 1.5% – more than any other category.
6) Borrowing From Our Future
The US National Debt has increased by over $450 billion since July 1st.
The Federal Government continues to borrow from our future to spend money like drunken sailors today.
Everything they said about “balancing the budget” was a lie.
The national debt has now increased $3.6 trillion in 13 months, fast approaching $40 trillion.
7) Six Years Gone
The US Bond Market has now been in a drawdown for six years, by far the longest in history.
At the start of this drawdown in 2020, the 30-year US Treasury Yield was below 1%, an all-time low. It ended last week at 5.27%, its highest level since July 2007.
8) Getting Closer to a Hike
The Fed’s preferred measure of inflation (Core PCE) came in at 3.3% for June. That was the 64th consecutive month above the Fed’s 2% target.
While the Fed chose to hold rates steady at their July FOMC meeting, there were three dissenting votes calling for a rate hike. The September meeting will be a live one with the current odds of a hike exceeding the odds of a hold.
9) The Value Stock Comeback
Value stocks have outperformed Growth stocks by over 20% in the first 7 months of this year, on pace for their biggest outperformance on record.
10) Falling Jobless Claims, Continued Expansion
US Jobless Claims have moved down to their lowest levels since January 2024, indicating fewer people filing for unemployment insurance.
The US economic expansion is now 74 months old, with most economists expecting it continue for at least another quarter. The average expansion since 1949 was 67 months.
And that’s it for this week. Thanks for reading!
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