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Strong earnings, softer inflation, happier markets

2026-08-14

Paul Eitelman, CFA

Paul Eitelman, CFA

Global Chief Investment Strategist




Economic insights Market insights

Key takeaways

  • Markets increasingly expect the Federal Reserve to remain on hold
  • AI-related borrowing is reshaping investment grade credit markets
  • Securitized assets offer opportunities as borrower performance diverges

Strong earnings sustain the equity rally

Global equity markets continued their strong summer run this week, supported by what has been an exceptionally strong second-quarter earnings season.

Through Thursday’s close, the S&P 500 Index was up roughly 0.6% on the week, extending its gain for August to around 4%.

Corporate earnings have been a key driver of that performance. Second-quarter results have delivered strong earnings growth alongside encouraging guidance from management teams heading into the third quarter.

Importantly, that strength has also been broad-based. AI-related companies continue to deliver healthy earnings growth, but positive fundamentals extend well beyond technology. Large caps, small caps and companies outside the AI theme are also contributing.

That breadth provides an encouraging foundation for equity markets and suggests the rally is being supported by underlying corporate fundamentals rather than a narrow group of companies.

Softer inflation supports bonds

Fixed income markets also received encouraging news this week following softer-than-expected U.S. inflation data.

Both consumer and producer price inflation came in below consensus expectations, helping ease concerns that persistent price pressures could force the Federal Reserve to raise rates at its September meeting.

At the beginning of the week, markets viewed the decision as close to a coin toss between a rate hike and a hold. By Thursday, the implied probability of a hike had fallen to roughly one in three.

Treasury yields declined in response, with larger moves at the front end of the yield curve, where rates are more sensitive to expectations for Federal Reserve policy. This resulted in a bull steepening of the Treasury curve.

Taken together, this week delivered a supportive combination for investors: healthy corporate earnings underpinning equity markets and softer inflation providing a tailwind for fixed income.

Articles of the week:

Understanding equity timing across different horizons

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