Markets navigate rising interest rates as earnings stay strong.
Taking a closer look…
- US companies have continued to report strong earnings growth, a key driver for stocks over time. With second quarter earnings season nearly done, 86% of companies have outpaced expectations, and 10 of 11 sectors have delivered positive earnings growth. Significant investment in AI technologies, consumer spending, and a rise in new orders for manufacturers have been key supports.1
- Moves in the bond market have been a key source of recent market shifts. While stocks have advanced, high-quality bonds, such as US Treasuries, have faced pressure as long-term interest rates moved higher. Resilient economic growth, persistent inflation, and a growing national debt are likely reasons for the move in interest rates.
- Higher interest rates may slow borrowing and economic growth. This could be a reason why the US Department of Treasury announced additional purchases of outstanding longer-term government bonds in the coming months, also known as bond buybacks.2 The overall increase in buybacks appears modest but likely signals to markets that policymakers are closely watching interest rate developments.
- Inflation risks remain in focus. Trade negotiations with Canada and developments in the Middle East led headlines last week. Tariffs and elevated oil prices could continue to drive inflation higher. For investors, maintaining a well-diversified portfolio may help provide resilience during periods of rising prices and market uncertainty.
Institutional Portfolio Manager, Strategic Advisers
"Many investors struggle with how markets and corporate earnings continue to rise despite rising interest rates, higher oil prices, and ongoing geopolitical uncertainty. While these risks are relevant, investors tend to pay more attention to negative news than to positive news. That’s why it’s important to adhere to a disciplined investment process that can help investors manage this tendency."
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