Following last quarter’s blockbuster earnings season, U.S. corporations delivered another quarter of exceptionally strong results. With nearly all S&P 500 constituents having reported results, over 85% of companies have beaten Wall Street’s consensus estimates, marking one of the highest beat rates in over two decades. Last earnings season, markets reacted with a euphoric recovery and rally as investors looked past the immediate impact from the conflict with Iran. With another quarter of equally impressive results, why have markets not reacted the same way as last quarter? Rising interest rates and midterm elections offer partial explanations.
Fixed income markets have grown increasingly unsettled in recent weeks as investors reassess the Federal Reserve’s path for benchmark interest rates. Yields have risen across the curve, reflecting a mix of concerns: the national debt recently surpassed $40 trillion, AI-related investments have become more reliant on debt financing, and long-term Treasury yields have climbed to their highest levels in decades.
At some point, higher bond yields could start to look more attractive than stocks. Without today’s strong earnings backdrop, that shift could threaten the current bull market.
Stock markets in midterm election years historically offer subdued returns until November, then tend to rally through the fourth quarter. While investment decisions shouldn’t rest solely on election outcomes, investors typically view elections as another element of uncertainty, leading to a “wait and see” approach until that uncertainty has passed, regardless of the outcome. After an already-strong year of market returns that has defied the typical pre-election trend, and with corporate growth and earnings remaining solid, the bar is set high for continued momentum following election season.
The JNBA Investment Committee remains cautiously positioned towards stocks amid the current environment with several elements of uncertainty. We continue to monitor the market environment diligently and remain committed to acting accordingly while keeping you informed. Please don’t hesitate to reach out to your JNBA Advisory Team with any questions.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
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