Why does that happen? The theory goes something like this: Analysts initially publish estimates that are a bit rosy, which is consistent with the fact that most stock ratings are “buy.” As the quarter progresses, reality almost always feels less robust as economic data, industry reports, and management comments trickle in. Perhaps executives are even guiding analysts in a way that lowers the bar.

Then, to analysts’ “surprise,” most companies ultimately report quarterly earnings that beat those lowered estimates.

But what if analysts flip the script and raise earnings estimates? Should investors be concerned? Are the odds higher that quarterly results fall short of these revised estimates?

I’m hearing these questions more often as analysts raise estimates ahead of Q3 earnings season (which kicks off in mid-October).

My response: I’m not convinced that raised estimates are any harder to beat than lowered estimates.

For starters, companies have a track record of clearing those elevated estimates.

Check out this chart from FactSet’s John Butters. It shows the change in analysts’ quarterly earnings per share (EPS) estimates during the first two months of each quarter. As you can see, analysts typically reduce estimates during the period. But on the right, you can see analysts have raised estimates for the current quarter, which pundits will remind you is unusual.

However, you’ll also notice that analysts raised their estimates for the recently completed Q2 more significantly.

And what did we learn from Q2 earnings season?

“For Q2 2026 (with 99% of S&P 500 companies reporting actual results), 87% of S&P 500 companies have reported a positive EPS surprise,” Butters wrote on Friday.

That’s right. 87% of companies beat those raised estimates.

“Earnings shattered the high bar, with the breadth of beats at a record high,” Deutsche Bank’s Binky Chadha observed in a recent note to clients.

And as TKer’s long-time subscribers already know, most companies beat estimates all the time.

Take a close look at this chart from Chadha showing the percentage of S&P 500 companies beating analysts’ estimates each quarter. Admittedly, it looks volatile. But look at the Y-axis: The beat rate never fell below 63% in any single quarter over the past 20 years!

Notably, the magnitude of the Q2 surprise was just barely above the long-term average of about 5%.

The bottom line: If you’re following the trajectory of analysts’ quarterly estimates, upward revisions aren’t something to worry about. Analysts tend to move estimates so most companies beat them, and by a margin of about 5%.

Why does this happen? You can read more about that here.

Is this really worth talking about?

My friend Morgan Housel often says, “Earnings don’t miss estimates; estimates miss earnings.”

In other words, whether a company reports better-than-expected earnings says just as much about the analysts covering the company as the company itself. Maybe more so.

So concerns about upward or downward revisions to quarterly estimates and where “the bar” is set may be missing the point for long-term investors. It’s why none of TKer’s 10 Truths About The Stock Market concerns companies beating analysts’ estimates.

That said, earnings certainly matter. And the fact that earnings are growing and expected to keep growing is a good thing.

And if you’re concerned that the pace of earnings growth is unsustainable, this may already be priced into the market. For more on that, read: The stock market may already be adjusting to a future with slower earnings growth 🤔

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Related from TKer:

• The truth about analysts’ deteriorating expectations 📉

• How to become one of Wall Street’s most accurate analysts in one step 🧮

• Is it easier to become a stock picker in a stock picker’s market?🕵

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 losing 0.8% to end at 7,656.98. The index is now down 1.8% from its August 13 closing high of 7,798.99 and up 11.9% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈Consumer price inflation heated up. The Consumer Price Index (CPI) increased 3.4% year-over-year in August, unchanged from the prior month. Adjusted for food and energy, core CPI rose 2.4%.

On a month-over-month basis, CPI increased 0.4% as energy prices jumped 2.1%. Core CPI was up 0.3%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 2.0% and 2.6%, respectively.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🎈 Inflation expectations remain a bit elevated. From the New York Fed’s August Survey of Consumer Expectations: “Median inflation expectations at the one-year and five-year-ahead horizons were unchanged at 3.6% and 3.0%, while they decreased at the three-year-ahead horizon by 0.1 percentage point to 3.2%.”

⛽️ Gas prices rise. From AAA: “The national average for a gallon of regular gasoline went up 13 cents since last week to $4.27 as crude oil prices continue climbing. Volatility in the Strait of Hormuz has pushed crude oil back in the $100 per barrel range for the first time since July. Pump prices are currently comparable to early June. As the graph below shows, the national average is increasing during a season when gas prices typically go down due to lower gasoline demand.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 206,000 during the week ending Sept. 9, down from 207,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.774 million during the week ending Aug. 29.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is picking up. According to payroll processor ADP, private U.S. employers added 15,000 jobs in the four weeks ending Aug. 22.

For more on the labor market, read: Things are looking up in the labor market 👍

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 7.8% y/y in the week ending Sep 5, according to BAC aggregated credit & debit card data. The surge in spending growth was likely due to base effects from the shift in Labor Day timing and the rebound in gas prices. However, ex-gas spending growth was also strong at 6.9% y/y in the week ending Sep 5.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes are in the dumps. From the University of Michigan’s September Surveys of Consumers: “Consumer sentiment receded less than 4 index points for the second consecutive month of decreases. Democrats and Republicans alike posted sizable declines, while independents were little changed from August. Year-ahead expectations for both personal finances and business conditions plunged. With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come. Five-year expected business conditions remained stable at readings well below their historical average, suggesting that consumers believe that emerging risks this month may not have further worsened the long-run outlook. Overall, sentiment is now 16% below February, prior to the start of the Iran conflict, and 13% lower than a year ago.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.76%, down from 6.71% last week.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏚 Home sales fell. Sales of previously owned homes declined 2.0% in August to an annualized rate of 3.98 million units. From NAR chief economist Lawrence Yun: “Mortgage rates and home sales move in opposite directions, so it’s not surprising to see a mild dip in home buying activity due to high mortgage rates… The number of months it would take to exhaust the total inventory at the current sales pace has grown to 4.9 months’ supply—its highest level in over ten years. The ample supply of homes for sale on the market is giving homebuyers better opportunities to negotiate.”

Prices for previously owned homes declined from last month but rose from year-ago levels. From the NAR: “The median existing-home sales price for all housing types in August was $429,100, up 1.6% from one year ago ($422,400) – the 38th consecutive month of year-over-year price increases.”

👍 Small business optimism deteriorated. The NFIB’s Small Business Optimism Index declined to 98.7 in August, down from 99.8 in July. From the NFIB: “Uncertainty remains elevated among small business owners as they face a mixed set of challenges with weakened sales, supply chain disruptions, and inflation pressures. While expectations for the overall economy dimmed, Main Street owners remain largely positive in the health of their own businesses.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 4.4% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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🗓️The reports below were released after the last review of macro crosscurrents but are more than a week old.

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 21,000 jobs in August.

Total payroll employment declined to 159.08 million jobs in August.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — stood at 4.1% during the month.

The labor force participation rate — that is, the number of employed and unemployed job seekers as a percentage of the civilian population — ticked up to 61.6% as 683,000 people entered the labor force.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in August. On a year-over-year basis, August’s wages were up 3.1%.

💰 Job switchers still get better pay. According to ADP, annual pay in August for people who changed jobs was up 7.3% from a year ago. That better-pay gap has been widening a bit in recent months. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.27 million job openings in July, up from 7.18 million in June.

During the month, there were 6.92 million unemployed people — meaning there were 1.05 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.77 million people in July. While challenging for the people affected, this figure represents just 1.0% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.05 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In July, 3.06 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💪 Labor productivity increases. From the BLS: “Nonfarm business sector labor productivity increased 1.4% in the second quarter of 2026 … as output increased 1.7% and hours worked increased 0.3%. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.2% in the second quarter of 2026.”

For more, read: Promising signs for productivity ⚙️

🎈 Fed’s preferred inflation measure remains elevated. The personal consumption expenditures (PCE) price index in July was up 3.7% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.3% during the month, unchanged from June’s rate.

On a month-over-month basis, the core PCE price index was up 0.2%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 3.0%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, how price trends evolve in the near term bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.2% month-over-month in July to an annual rate of $22.2 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures was unchanged from the prior month’s all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In July, the saving rate was 3.0%, near its lowest level in four years.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

🛠️ Industrial activity increased. Industrial production activity in July rose 0.2% from prior month levels. Manufacturing output rose 0.4% compared to the prior month.

🏭 Business investment activity ticked lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 0.05% in July to $85.7 billion, just below the record level.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🏠 Home prices rose. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.5% year-over-year in June and 0.1% month-over-month. From S&P Dow Jones Indices’ Rebecca Kaufman: “While home prices continue to decline in real terms, lower inflation and firmer nominal home price growth in June helped slow that pace of erosion… The housing market remains under pressure, with 30-year mortgage rates holding near 6.5% in June. As financing costs are kept high for prospective buyers, current homeowners remain reluctant to give up the low mortgage rates secured in prior years.”

For more on how home prices and how they may be affecting saving, read: A contrarian note about the falling personal saving rate...💸

🔨 New home construction starts fell. Housing starts declined 12.4% in July to an annualized rate of 1.24 million units, according to the Census Bureau. Building permits rose 5.0% to an annualized rate of 1.44 million units.

👎 Consumer vibes deteriorate. The Conference Board’s Consumer Confidence Index declined by 0.8 points in August. From the report: “The Expectations Index slipped further into negative territory, which was offset by a moderate rise in the Present Situation Index after declining in the past three months. Consumer appraisals of current business conditions were mildly positive. Perceptions of the current labor market improved, reversing three months of moderate decline. Looking ahead, consumers were more pessimistic about business conditions and the labor market over the next six months. Expectations for household incomes moderated but remained optimistic overall.”

More from the report: “On a six-month moving average basis, confidence across all age groups trended down slightly, remaining highest among consumers under 35. By income, confidence was mixed, but generally higher-income groups were more optimistic. By generation, confidence for Gen Z remained the highest, followed closely by Millennials on a six-month moving average basis. The three oldest generations—Generation X, Baby Boomer, and Silent Generation—trailed in confidence by a wider margin. By political affiliation, confidence among Independents and Republicans softened while Democrats were somewhat more positive in August.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers feel slightly less bad about the labor market. From The Conference Board: “Consumers’ views of the labor market improved in August, recovering to April levels: 27.0% of consumers said jobs were ‘plentiful,’ up from 24.4% in July. Conversely, 19.5% of consumers said jobs were ‘hard to get,’ down from 21.7%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). The direction of the spread reflects a cooling sentiment toward the labor market.

More from The Conference Board: “Consumers were more negative about the labor market outlook in August: 14.6% of consumers expected more jobs to be available, down from 16.4% in July. Additionally, 26.1% anticipated fewer jobs, up slightly from 25.3%.“

For more on the labor market, read: Things are looking up in the labor market 👍

😬 This is the stuff pros are worried about. From BofA’s August Global Fund Manager Survey: “On the biggest tail risk… ‘AI bubble’ took the top spot for the 2nd straight month, per 32% of investors (down from 45%). ‘Disorderly rise in bond yields’ rose to #2 at 27% (was #3 behind ‘2 wave of inflation’ in July).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Known worries and unknown unknowns 😬 and Two times when uncertainty seemed low and confidence was high 🌈

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s July State Coincident Indexes report: “Over the past three months, the indexes increased in 46 states, decreased in three states, and remained stable in one, for a threemonth diffusion index of 86. Additionally, in the past month, the indexes increased in 46 states, decreased in two states, and remained stable in two, for a one-month diffusion index of 88.”

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

So then why hasn’t this year’s interest rate rally led to job cuts, weaker spending, and disappointing earnings? Why is the S&P 500 down less than 3% from its all-time high?

As we’ve been discussing, it’s more complicated than “higher interest rates are bad.”

Read more

If you’re looking for something to pass the time, check out 12 stock market charts that caught my attention 📊📈 and 24 quick thoughts on the markets and the economy 📋.

I also recommend reading Liz Ann Sonders’ compilation of investing quotes, which she reshared last week.

One of the older quotes on her list explains simply why long-term investors sometimes make costly mistakes in the short-term.

I found that it also explains why investors should be wary when a markets pundit goes on TV and predicts that stocks are about to tumble.

I wrote about it two years ago. I’m resharing the post in a free newsletter today below.

By the way, make sure to check out TKer’s searchable archives. There’s lots of stuff in there that you might find helpful today.

AUG 25, 2024

Liz Ann Sonders, chief investment strategist at Charles Schwab, compiled an outstanding list of quotes from history’s investing legends. (I recommend reading her post from start to finish.)

One quote that stuck out to me came from Edwin Lefevre, author of “Reminiscences of a Stock Operator”:

Speculators buy the trend; investors are in for the long haul; ‘they are a different breed of cats.’ One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.

Some people try to make money trading the stock market over short-term periods. Some aim to build wealth by investing in the stock market over long, multi-year timeframes. Many do some combination of both.

All of these people seek out information and insights that might help them get an edge and improve their returns.

Unfortunately, trading tips and investment advice come with a lot of the same jargon that makes it easy to confuse the two if you’re not paying careful attention.

When a markets expert starts talking, the first question you should ask is: “What is the timeframe?”

Is it one month? One year? Several years? One day?

Why? Because it’s possible that the same person who’ll tell you stocks will fall in the coming weeks will also tell you they expect prices to be higher in the coming years. In fact, I can almost guarantee you that the Wall Street strategists who expect the S&P 500 to fall this year will also tell you it’ll be much higher in three to five years.

All this relates to Step 4 of TKer’s “5-step guide to processing ambiguous news in the markets and the economy”: “Beware the motivations of those communicating the information.”

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The hot shot hedge fund manager on financial TV may present a compelling, eye-catching case for why the stock market could tumble from here. However, reporters don’t always follow up and ask what to expect when you stretch the timeframe, which may be more relevant to long-term investors. This lack of temporal context is common in the news industry, which tends to focus on the recent past and the near future.

This doesn’t mean that investors should completely ignore what the pros are saying about what could happen in the coming weeks or months. While expectations for volatility in the near-term might not affect how you position your long-term investments, they can serve as valuable reminders to keep your “stock market seat belts” fastened.

After all, the odds that stocks fall are relatively high when you look at short timeframes.

As my friend Joseph Fahmy says: “The majority of arguments on FinTwit have to do with timeframe. One person could be selling a stock because they think it will go down over the next 2 days and another could be buying because they think it will go up over the next 2 years. Don't assume everyone trades like you.”

FinTwit, the community of people posting about finance on X, sees lots of heated bulls vs. bears debates about markets that come to no resolution. And it’s often the case that one side may be making the case for a short-term trade whereas the other side is making the case for a long-term investment — but the two sides aren’t aware of the disconnect. They’re not necessarily in disagreement; they’re just arguing about different things.

Zooming out 🔭

TKer Stock Market Truth No. 1 says: “The long game is undefeated.“ In other words, the stock market usually goes up over time.

Meanwhile, TKer Stock Market Truth No. 2 says: “You can get smoked in the short-term.” That is to say long-term investors should be prepared to experience a lot of sell-offs on the way up.

When I compiled this list of truths, I deliberately put these two next to each other because I wanted to make clear that bearish market developments can occur within a bullish long-term framework.

All of this is to say that it’s possible to be bullish and bearish simultaneously. The nuance is in the timeframe.

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Related from TKer:

• The stat explaining why the stock market gets so much negative news coverage 📺

• A 5-step guide to processing ambiguous news 📋

• Beware alarming business stories that get a lot of news coverage 🗞️

• The best investing wisdom shares a common theme 🧐

• 10 truths about the stock market 📈

Year to date, the S&P 500 is up over 11%.

Meanwhile, the index has experienced an intra-year max drawdown of 9%, below the historical average of 14%.

In other words, we’d have to get a pretty ugly market sell-off in the next four months for 2026 to go down as an average year — which is certainly possible and why investors should always keep their stock market seat belts fastened.

As TKer’s 10 Truths remind us, while the long game is undefeated, a lot can go wrong — and right — in the short term.

With that in mind, here are some charts about the present moment that caught my eye.

Many stocks are going in the opposite direction of the market

For those catching up, beta measures how much an individual stock moves relative to the market average (e.g., the S&P 500). For example, if an S&P stock has a beta of 1, then it has historically moved in tandem with the index. If its beta is greater than 1, its moves have been more amplified than the index (e.g., a tech stock that goes up 2% on a day the S&P 500 goes up 1%). If its beta is between 0 and 1, its moves have been more subdued.

If a stock’s beta is negative, then it’s been moving in the opposite direction of the market. Historically, few S&P stocks have had negative betas.

That brings us to this observation by Janus Henderson’s Richard Bernstein.

“The stock market’s recent narrow leadership … has left a near-record number of companies with negative betas,” Bernstein wrote. “That should sound very odd to everyone, but it was true during and after the Tech Bubble, and it’s true again today.”

“Leadership has been so narrow that stocks can diversify stocks!“ Bernstein quipped.

This helps us better understand why correlations within the S&P have tumbled.

There’s much to be said about this. For now, one point I’ll make is that it would not be unprecedented for many stocks to lag even as the market averages continued to trend higher.

But for those of us who lived through the Tech Bubble, this development is understandably unsettling.

Related: The first half of 2026 confirmed a valuable stock market lesson 🤔

Getting the midterms behind us could be bullish

The second year of a president’s term tends to be the weakest of the four years. Strategists typically blame midterm elections for raising uncertainty.

On the plus side, the stock market has performed consistently well once we get a clearer indication of what the results could look like.

“Since 1970, the market has started to rally on average around a month (22 trading days) before a midterm election, as polling data provides clearer indications of results,” BlackRock analysts wrote. “As event risk passes post-election, equities have historically experienced tailwinds, with an average return of 14.1% in the following six months compared to 5.7% in non-midterm years.”

Interestingly, election results don’t necessarily have to be “good” or “bad” relative to your political leanings.

“Regardless of the outcome, midterms can help reduce uncertainty, with markets often rallying after the event,” the analysts added.

This is true of presidential elections too.

You could make the case that some outcomes are more favorable for business than others.

But in the business world, the only thing worse than a less favorable outcome is uncertainty about the future.

Related: If you think things are bad now, just keep in mind that they could get much worse 📉

Pension funds have been doing well, which could be a headwind for stocks

The stock market’s impressive gains have been a win for those invested.

Ironically, this may have created a headwind for … the stock market.

From Citadel Securities’ Scott Rubner: “The top 100 U.S. pension plans are approximately 112% funded, their highest funding levels since 2001. Strong funding levels continue to incentivize plans to de-glide and immunize portfolios, creating the potential for mechanical equity selling and fixed income buying into quarter-end.”

It makes sense. If I were tracking well ahead of my savings goals, I might adjust my allocations to reduce risk in my portfolio, too.

That said, I’m not sure I’d personally trade this development.

I only highlight it because it’s one of the countless things going on in the market that may or may not explain why prices do what they do in the short term.

It’s more complicated than ‘higher interest rates are bad for stocks’

All else equal, higher interest rates mean higher financing costs. All else equal, higher interest rates mean lower theoretical valuations.

But the stock market’s relationship with interest rates is far more complicated than that. Consider the simple chart below.

Read more

Unfortunately, much of the economic data we get regularly is based on surveys, which means it comes with a margin of error. And even after it’s published, the data is often revised as more information comes in.

For example, the July new home sales report showed sales fell 10.5% during the month. But the Census Bureau also noted that the margin of error at the 90% confidence interval was ±14.0%, which means sales could have actually climbed by 3.5%.

With the July jobs report, the Bureau of Labor Statistics revised the tally for May and June lower by 103,000 jobs.

These revisions usually aren’t a big deal. But growing concerns about data quality and the politicization of revisions have made this wonky topic something that more people are thinking about.

In particular, downward revisions to economic activity metrics seem to get a lot of attention.

On that, I have two thoughts for stock market investors.

Read more

When interest rates climb to multi-year highs, it means you’ll soon hear more market pundits pontificate about the equity risk premium (ERP), which can be roughly defined as the additional return investors expect from stocks relative to bonds.

Read more

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The economy is doing pretty well, earnings growth is great, and the stock market just set new all-time highs.

In recent weeks and months, much of the major news we’ve gotten has been consistent with ongoing market narratives, which we’ve covered in this year’s free and paid newsletters.

But I know we’re all busy, and most of us aren’t able to read through every newsletter.

So for your convenience, I’ll do a speedrun through some of the data and insights shared in some of these newsletters that you might find helpful today.

• History continues to confirm that the stock market can trend higher even as the market’s leaders struggle. (Link)

• Many of the popular arguments for why this year’s stock market rebound “doesn’t make sense” are getting the story wrong. (Link)

• Most of the time, the stock market has bigger concerns than the next quarter-point move by the Fed. (Link)

• Some people are worried about earnings growth cooling. There’s evidence that the market has been pricing in this concern for a year. (Link)

• Energy costs are nothing compared to labor costs for most big, publicly traded companies. (Link)

• For stocks, the direction of interest rates isn’t as important as the rate of change. (Link)

• Things that make obvious economic sense aren’t always consistent with what happens in the stock market. (Link)

• Investing in the stock market at all-time highs has produced slightly better returns than investing during other periods. (Link)

• Investing in non-U.S. stock markets doesn’t always reduce your exposure to the U.S. economy. (Link)

• All but two of the world’s major stock markets are more concentrated than the U.S. (Link)

• The S&P 500’s index inclusion requirements are pretty good. But they also have some big issues. Maybe it’s time for a change, which wouldn’t be unprecedented. (Link)

• A falling saving rate doesn’t mean households are financially stretched. In fact, it may reflect increasing financial strength. (Link)

• Consumers have become less sensitive to inflation. (Link)

• Many of the most successful companies in history have pivoted to businesses their initial investors would have never anticipated. (Link)

• Some advisors recommend investors bury their heads in the sand to avoid making mistakes. I think that’s bad advice and will make you more prone to making mistakes. (Link)

• Stocks have been a good hedge against inflation. (Link)

• Even though it has increasingly become a “stock picker’s market,” there’s not much evidence that more stock pickers are beating the market. (Link)

• Anything in the news that matters for investors can be tied to line items on a business’s income statement. (Link)

• We spend a lot of time worrying about things that won’t happen and not enough time worrying about things that will. (Link)

• Wall Street’s first 2027 stock market forecast is out, and it’s basically exactly what TKer subscribers might expect. (Link)

• No matter how good things get, most people will never be satisfied with what they have, and that’s bullish. (Link)

• Profit margins are at record highs, and they’re trending higher for most sectors. (Link)

• For investors, many macro debates are resolved every three months. (Link)

• I can make the argument that expecting a 10% stock market decline isn’t actually bearish. (Link)

There’s more from where that came from. If you have questions about the stock market, chances are you’ll find answers in TKer’s archives. Use the search🔎 function in the upper right corner of TKer.co and type in some keywords.

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Related from TKer:

• It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

• My definition of ‘bearish’ is different from yours 🧸

• How do I think of today’s AI craze relative to past bubbles? 🫧🤖🚂🚗

• 2 market-crash facts that surprised me 📉

• ‘Better-than-expected’ has lost its meaning 🤷🏻‍♂️

• Two seemingly contradictory charts about economists and the economy 📈📉

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,816.70 and a closing high of 7,798.99 on Thursday. The index is up 13.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💰Household finances are stable and mostly normalizing. Household finances strengthened considerably during the COVID-19 pandemic, helped by a combination of limited spending options and government financial support. Over the past three years, finances have deteriorated but are mostly normalizing to pre-pandemic levels.

The New York Fed’s Household Debt & Credit report suggests finances continue to stabilize at those more normal levels. From the Q2 report: “Aggregate delinquency rates improved slightly in Q2 2026, with 4.7% of outstanding debt in some stage of delinquency.“

“Transition into early delinquency rose slightly for auto loans and mortgages but was largely steady for credit cards and ‘other’ debts. Delinquency transitions improved slightly for HELOCs.“

“Transition rates into serious delinquency remained mostly unchanged. Student loan delinquencies were an exception, with the continued impact of the re-reporting of defaulted student debt causing some distortions.“

And while credit card debt balances often steal headlines, it’s a mistake to suggest consumers are maxing out their credit cards. The $1.26 trillion in credit card balances as of Q2 represents just a tiny fraction of credit card limits.

One popular way to look at debt relative to income is household debt service payments as a percent of disposable income. This is a metric that has been deteriorating since 2021. But relative to history, it remains pretty strong.

For more on household finances, read: Economic data can often be both ‘worse’ and ‘good’ 🌦️

🛍️ Retail shopping activity ticked down from record levels. Retail sales in July declined 0.6% to $763.6 billion.

Excluding autos and gas, which tend to be volatile in the short term, retail sales declined 0.2%.

Here’s a look at the change in retail sales by category.

Weakness was driven by a 2.2% drop in online retail. Renaissance Macro’s Neil Dutta explained: “The timing of Amazon Prime Day depressed retail sales in July. Prime Day normally falls in July but happened in June this year. As a result, sales in June were juiced at July’s expense. Average out the two months, core retail sales and food services were up just 0.1% per month.“

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 6.2% y/y in the week ending Aug 8, according to BAC aggregated credit & debit card data. Many categories saw substantial increases in y/y spending growth relative to the prior week. The rebound in spending over the last three weeks is consistent with our view that the mid-July slump was just a blip.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes are in the dumps. From the University of Michigan’s August Surveys of Consumers: “Consumer sentiment fell about 8% this August, ending two consecutive months of improvement. While views of personal finances saw only minor declines, expected business conditions sank 11% for the short run and 17% for the long run. Decreases in sentiment were seen across the political spectrum, with Republicans exhibiting the strongest month-to-month decline in August. Sentiment among Republicans is now 19% below readings just prior to the Iran conflict and the lowest since the 2024 election. Although the early-month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree. These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 209,000 during the week ending Aug. 8, up from 200,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.777 million during the week ending Aug. 1.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🎈Consumer price inflation cooled as gas prices fell. The Consumer Price Index (CPI) increased 3.4% year-over-year in July, down from 3.5% the month prior, as energy prices declined. Adjusted for food and energy prices, core CPI was up 2.5%.

On a month-over-month basis, CPI increased 0.1% as energy prices fell 1.5%. Core CPI was up 0.2%. If you annualize the three-month figures — a reflection of the short-term trend in prices — core CPI climbed 1.6%.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices tick higher. From AAA: “Today’s national average is back up to $4.07 after dropping to $4.00 on Monday. Crude oil prices are once again in the $80 per barrel range amid continued uncertainty along the Strait of Hormuz. While gasoline demand is down, crude oil prices are keeping pump prices higher than normal for this time of year. So far, this is the highest August on record when it comes to the national gasoline average.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🏚 Home sales declined. Sales of previously owned homes fell 1.7% in July to an annualized rate of 4.06 million units. From NAR chief economist Lawrence Yun: “Home sales have been remarkably stable, even amid the rising mortgage rate environment of the past few months. Year-to-date sales are up 2.4% and there’s no doubt that the housing market would be thriving if average mortgage rates were to return near 6%.”

Prices for previously owned homes declined from last month, but rose from year-ago levels. From the NAR: “The median existing-home sales price for all housing types in July was $434,100, up 2.0% from one year ago ($425,700) – the 37th consecutive month of year-over-year price increases.”

🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.67%, down from 6.69% last week. From Freddie Mac: “Housing affordability has improved from a year ago, and recent increases in purchase and refinance applications suggest that borrowers continue to respond to even modest changes in mortgage rates.”

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

👍 Small business optimism improves. The NFIB’s Small Business Optimism Index rose to 99.8 in July from 97.4 in June. From the NFIB: “Small business optimism rose again in July, with a significant increase in owners expecting to hire, accompanied by an improvement in plans to make capital expenditures. Although uncertainty is currently elevated, Main Street anticipates that business conditions will continue to improve.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🍾 The entrepreneurial spirit remains elevated. From the Census Bureau: “Total U.S. Business Applications were 578,926 in July 2026, up 8.1% from June 2026.“

🏢 Offices remain relatively empty. From Kastle Systems: “The Kastle 10-City Back to Work Barometer reported a national average occupancy of 54.4%, down 1.2 points from the prior week’s 55.6%. Even in the midst of summer vacation season, 54.4% is only 2.5 points below the highest weekly average reported since January 2024, which was 56.9% nationally in March of this year.”

For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 4.3% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

According to FactSet, analysts expect the S&P 500’s 2026 earnings to reflect 30% growth from last year. This helps explain why the index is up 14% since the beginning of the year, following last year’s 16% rally and 2024’s 23% surge.

Some people are worried about what could happen to stocks if and when the earnings growth rate cools.

I think this is a legitimate concern since earnings are the most important long-term driver of stock prices.

But I have two thoughts.

Read more

But for some important matters, a single word or phrase can be a little too imprecise and ambiguous, leading some to make incorrect assumptions about what’s being said.

This can be a big problem when discussing the markets and the economy, where language sometimes has multiple meanings.

There’s also the fact that people often leave out the time frame when they’re talking about markets, which is why short-term traders and long-term investors often sound in conflict when they might actually agree.

Let’s discuss some of these words and phrases.

“The economy”

Some people say the economy is doing well. Some say it’s doing poorly.

But what economy are they talking about?

There’s the economy as measured by gross domestic product (GDP), which aggregates a bunch of financial measures of activity, like personal consumption, investment, government spending, and international trade.

There’s also the National Bureau of Economic Research’s (NBER) definition, which includes non-financial metrics like employment gains.

Some say the economy goes into recession when GDP growth is negative for two consecutive quarters. But officially, it’s not a recession until the NBER determines we’ve had a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.“

Many people will tell you neither of those definitions is sufficient. Just because you have a job and you’re buying stuff doesn’t mean you feel particularly good about the economy. Maybe you hate your job more than ever. Or despite all your spending, maybe you’re actually falling short of your hopes and dreams. Surveys of confidence and sentiment show people feel unusually crummy about their present situation and prospects despite GDP at record highs and unemployment at historic lows.

And then there’s the stock market, which appears to reflect ebullience, with prices near all-time highs. That’s because stocks are driven by corporate earnings, which is to say the economy matters to the stock market to the extent it’s fueling earnings growth. The stock market doesn’t care how poorly you feel about the economy as long as profits are going up.

Also, don’t get me started on how politicians will spin the definition of the economy in ways to confirm their biased narratives.

For more, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

“Bullish” and “bearish”

To be bullish means you think a stock or the stock market is going up. To be bearish means the opposite.

For most of my life, I didn’t think too much more than that.

That was until November 2021, when Morgan Stanley strategists published a 12-month target for the S&P 500 that implied a 6% decline. It was the call that prompted financial media to label Morgan Stanley strategist Mike Wilson a market bear. And to his credit, he got the market’s direction right.

But is expecting a 6% decline within a year really bearish?

Since 1980, the S&P 500 has seen an average intra-year max drawdown of 14%, and in most of those years the market closed higher.

In down years, the S&P 500 fell by an average of 13%.

For you statistics nerds, a 6% decline is within one standard deviation of the market’s average annual return.

So if you’re a long-term investor like me — someone who expects volatility in the short-term — then an occasional 6% decline is arguably bullish since sharper declines would still be within the boundaries of what’s historically normal.

Now if you were expecting the market to be 6% lower five or 10 years from now, that would be a different, arguably more bearish story. History says the probability of positive returns is considerably higher as you extend the time horizon.

While I used to think ‘bullish’ and ‘bearish’ were simple adjectives, I increasingly view these terms as relative to the individual, especially over the long term.

If someone tells you they’re bearish and their opinion matters to you, then you should also find out how much they expect prices to fall and over what time horizon.

If this bearish person tells you they expect the decline to occur within a year, ask them where they think prices are headed in the following year or over the next several years. Sometimes they’ll surprise you with an unexpectedly bullish response.

For more, read: My definition of ‘bearish’ is different from yours 🧸

“Bubble”

In my experience, no two people define bubbles precisely the same way.

However, everyone at least agrees that bubbles involve asset prices rising far past what most would argue is justifiable — before falling sharply.

With that in mind, let’s say we’re in a bubble. What are we to do with that information?

When some market pundits warn we’re in a market bubble, they’re trying to tell you that you shouldn’t have money in the market because they think you’re at risk of losing money.

But many other experts will stop short of suggesting that money invested now is doomed to turn into losses. Because it’s possible that prices go much higher, and when they eventually fall, they settle at a level that’s higher than where we are today.

Consider when then Fed Chair Alan Greenspan uttered the phrase “irrational exuberance” in December 1996, when the S&P 500 was at 749. While he wasn’t explicitly warning the market was in a bubble, he was at least suggesting that there were signs the market was overextended. And history credits him for predicting the dotcom bubble that eventually burst.

Here’s the issue: After the dotcom bubble popped, the S&P 500 bottomed in 2002 at 776. That’s right. The S&P’s post-bubble low was actually higher than where it was when Greenspan gave his speech.

So if someone tells you we’re in a bubble, you should at least ask if they think the market will be lower than where it is today once the dust settles.

For more on bubbles, read: How do I think of today’s AI craze relative to past bubbles? 🫧🤖🚂🚗 and 2 market-crash facts that surprised me 📉

“Beat expectations” or “miss expectations”

After every earnings announcement and every economic data release, one of the first things you hear is whether the report beat or missed expectations.

Specifically, it’s in reference to some average estimate calculated by surveying analysts or economists who provide forecasts for those reports.

The implication is that if the report beats estimates, it’s good. If it misses, it’s bad.

However, there are all sorts of problems with this.

For starters, you could argue it’s not the report that beat or missed estimates. Rather, it was the analysts or economists who got it wrong.

But even if the reported results and estimates were bang in line with each other, you still lack critical information. Did the metric grow or decline? Did growth accelerate or decelerate? Did profits flip to losses?

There are also scenarios where a company can report accelerating growth that exceeds management’s own targets but “miss” some analyst’s forecast. Who exactly failed here?

By the way, most large publicly traded companies have historically “beat” quarterly expectations. That is to say that “better-than-expected” is arguably expected. I mean, what are we even talking about at this point?

For more on analyst and economist forecasts, read: ‘Better-than-expected’ has lost its meaning 🤷🏻‍♂️ and Two seemingly contradictory charts about economists and the economy 📈📉

“This time is different” or “unprecedented”

In our efforts to understand what could happen in the future, investors, analysts, and lowly newsletter writers like me draw from history.

The past is rich with analogs that often repeat to some degree.

However, in markets, we all understand that we’ll never relive all of the exact conditions of past episodes. And so there’ll always be some uncertainty when we draw from the lessons of the past.

But every once in a while, we’ll hear a market prognosticator lead their counterargument to a historical pattern by asserting, “THIS TIME IS DIFFERENT.”

Sometimes that person will provide the compelling evidence to argue their point, which is what you hope for in any argument.

But sometimes, you’ll hear people throw around language like “this time is different” and “unprecedented” like it’s some sort of rhetorical trump card that lazily invalidates any argument that draws from history.

The fact of the matter is this time is always different. We are by definition always living in unprecedented times.

And so this language is mostly meaningless unless you can back it with evidence about what often happens when certain conditions are met — and why it won’t happen this time around.

The big picture 🖼️

When we’re talking about inconsequential things, words and phrases can serve as a great shorthand to explain things ambiguously.

I like food. I’m optimistic about his health prognosis. Your sister was prettier than I expected.

But if an ambiguous statement could inform something serious like an investment decision, you should always seek more context.

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Related from TKer:

• It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

• My definition of ‘bearish’ is different from yours 🧸

• How do I think of today’s AI craze relative to past bubbles? 🫧🤖🚂🚗

• 2 market-crash facts that surprised me 📉

• ‘Better-than-expected’ has lost its meaning 🤷🏻‍♂️

• Two seemingly contradictory charts about economists and the economy 📈📉

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,793.68 on Wednesday and a closing high of 7,757.64 on Friday. The index is up 13.3% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💼 Jobs were lost. According to the BLS’s Employment Situation report, U.S. employers cut 23,000 jobs in July. The prior two months’ reports were revised lower by 103,000 jobs.

Total payroll employment declined to 158.86 million jobs in July.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — declined to 4.1% during the month.

The labor force participation rate — that is, the number of employed and unemployed job seekers as a percentage of the civilian population — declined to 61.4% as 264,000 people left the labor force.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.1% month-over-month in July. On a year-over-year basis, July’s wages were up 3.2%.

💰 Job switchers still get better pay. According to ADP, annual pay in July for people who changed jobs was up 7% from a year ago. That better-pay gap has been widening a bit in recent months. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings decline. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.359 million job openings in June, down from 7.537 million in May.

During the month, there were 7.09 million unemployed people — meaning there were 1.04 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.77 million people in June. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.35 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In June, 3.23 million workers quit their jobs. This represents 2.0% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💪 Labor productivity increases modestly. From the BLS: “Nonfarm business sector labor productivity increased 1.4% in the second quarter of 2026 … as output increased 1.7% and hours worked increased 0.3%. …From the same quarter a year ago, nonfarm business sector labor productivity increased 2.2% in the second quarter of 2026.”

For more, read: Promising signs for productivity ⚙️ and The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 199,000 during the week ending Aug. 1, up from 198,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.801 million during the week ending July 25.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🎈 Inflation expectations cool marginally. From the New York Fed’s July Survey of Consumer Expectations: “Median inflation expectations at the one-year-ahead horizon decreased by 0.1 percentage point to 3.6% in July. The three-year and five-year-ahead horizons were unchanged at 3.3% and 3.0%.”

⛽️ Gas prices remain above $4. From AAA: “The national average for a gallon of regular gasoline fell three cents this past week to $4.06. Crude oil prices are down in the $70 per barrel range amid optimism that the Strait of Hormuz will resume normal operations. Currently, half of states are paying below $4 per gallon on average. Gas prices typically start going down this time of year, as many schools and universities begin fall semesters, and fewer people are taking road trips compared to earlier in the summer.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.7% y/y in the week ending Aug 1, according to BAC aggregated credit & debit card data. Many categories saw moderate increases in y/y spending growth relative to the prior week. The K remains ‘closed’: ex-gas spending growth is running at the same y/y rate among higher- and lower-income HHs.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.69%, up from 6.66% last week. From Freddie Mac: “While mortgage rates continue to influence affordability, the housing market is showing signs of adjustment, with listing prices modestly below year-ago levels and for-sale inventory improving from the limited supply seen in recent years.”

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🔨 Construction spending ticked lower. Construction spending decreased 0.1% to an annual rate of $2.17 trillion in June.

📋 Manufacturing activity surveys signal growth, but also challenges. From S&P Global’s July U.S. Manufacturing PMI: “Although the headline PMI held steady in July, beneath the survey we see some warning signs about the future growth trajectory. Production rose at a markedly slower rate in July, linked to a third month of weakened growth of new business, in turn reflecting reduced inventory building after the especially strong precautionary stock accumulation reported in the second quarter. Further pressure came from increased supply chain delays, falling exports, and further pushback on high prices from customers.”

Similarly, the ISM July Manufacturing PMI signaled cooling growth.

🤷 Services activity surveys signal growth, but also caution. From S&P Global’s July U.S. Services PMI: “The PMI points to GDP rising at an annualized rate of 2.3%, following a 1.5% increase indicated for the second quarter. Business optimism has meanwhile climbed to its highest since last November. Some caution is needed in interpreting these improvements, as the stronger performance partly reflected temporary factors. We note that the biggest improvement in demand in July was reported among consumer-facing service providers, spending on which surged at a rate not seen for over four years linked to the FIFA World Cup and US Independence Day events.”

Meanwhile, the ISM’s July Services PMI signaled growth.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊

🏭 Business investment activity ticks higher. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 1.2% to a record $85.4 billion in June.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.8% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

On the one hand, quarterly reports provide fresh financial information and management commentary that help existing and prospective investors make decisions about buying or selling shares of a company.

On the other hand, critics argue that requiring companies to disclose financials every three months puts pressure on executives to meet short-term expectations, which can incentivize bad behavior and lead to poor decisions that put longer-term goals at risk.

But beyond these company-specific matters, quarterly reports serve a broader purpose for those keeping an eye on the economy and markets.

When macro signals are ambiguous and experts are split on what news means for business activity, quarterly financial results provide tangible clarity that puts many debates to rest.

Read more

At the time, Damodaran, aka “The Dean of Valuation,” had concluded that SpaceX was worth about $1.3 trillion, significantly below the $1.77 trillion valuation set at its IPO. (As of Friday, SpaceX was worth about $1.4 trillion.)

The conversation is interesting and wonky. If you want to nerd out a little, check it out on Spotify, Apple Podcasts, or YouTube.

While they focused on SpaceX, I thought Damodaran had some great quotes that spoke to the challenges of valuing any company.

“‘That’s a lot of assumptions you’re making.’ Yeah, absolutely. What choice do I have?”

In theory, a company is worth the present value of all its future cash flows. To put it more crudely, it’s all the money you expect the company to make after some adjustments for the fact that you won’t get much of that money until some time in the future.

The equations involved aren’t too complicated. It requires some understanding of accounting and how discount rates work.

What’s hard is getting all the inputs right.

You need to know exactly how much product the company will sell and what the costs will be. And you need to know what those numbers look like every year for the rest of the company’s existence, which means knowing if that company will last forever or when that company will eventually shut down.

Additionally, you have to know what the company’s capital structure (e.g., how much debt and equity financing it will use) will look like. Once you have that figured out, you have to know what interest rates for its debt will look like as well as what the premium to own its stock will look like — again, for the rest of the company’s existence.

If you get any of these assumptions wrong, you’ll have something that professional financial analysts call a “garbage in, garbage out” problem.

Now, the nature of these assumptions is arguably unusually uncertain with SpaceX and all of the speculative areas the company intends to explore. And Damodaran is aware.

“If your reaction as you look at my story and valuation is, ‘That’s a lot of assumptions you’re making.’ Yeah, absolutely,” he said. “What choice do I have?”

If you look back at history, I’m not sure you’ll find a single company whose future path was easily predictable, especially considering the swings in the economy, the shifts in consumer interests, and the direction of technology.

And by the way, when’s the last time you heard about an interest rate or stock market forecaster nailing it year in and year out?

But to Damodaran’s point, analysts aiming to derive the value of a company have no other choice but to make a ton of assumptions, many of which are likely to miss the mark by a wide margin.

“Do you know what the biggest intangible is? Future growth.”

Wu’s podcast is called “The Intangible Economy.”

Damodaran leaned into the wordplay.

“Do you know what the biggest intangible is?” he asked. “Future growth.”

A company’s assets can be divided into tangible assets (e.g., real estate, factories, machines, inventory, cash, and cash equivalents) and intangible assets (e.g., patents, copyrights, trade secrets, and goodwill).

Intangible assets are often the target of skeptics who aren’t convinced by the values companies attach to these items. To be fair, it’s just very hard to assign a dollar value to something you can’t really touch or sell for scrap.

In the context of valuing a company, it’s worth emphasizing that the bulk of the theoretical value usually doesn’t come from what’s earned this year or even next year. It comes from all the money it’s expected to earn many years in the future.

This is critical to understanding why unprofitable companies can boast massive valuations. Investors aren’t betting on how much these companies have already lost and how much they’ll lose in the near future. They’re betting on what they’ll make down the road.

“If you’re numbers-bound, I’ll tell you up front: SpaceX looks awful as an investment if all you can focus on is what they have in their books,” Damodaran said.

Unfortunately, what SpaceX could do in the future won’t be found on a balance sheet.

“My definition of intangible is you can’t see it,” Damodaran added.

It’s no wonder people struggle when investing in the stock market, especially when it comes to stocks in new industries.

“It’s like having a kindergartner’s report card and extrapolating from that what they’ll be doing in college.”

One of the first things Damodaran asks students taking his valuation class is, “What are you more comfortable with: working with numbers or telling stories?”

He’s observed that numbers-oriented students tend to become traditional financial professionals like bankers and value investors. Meanwhile, the storytellers go on to be venture capitalists and founders.

He doesn’t necessarily think one approach to finance is more right than the other. Rather, he believes if you’re too entrenched in one camp, you’ll miss a big part of what goes into a well-thought-out valuation.

For example, he noted that the numbers-oriented folks tend to overemphasize current financial statements to a fault.

“The analogy I would offer is this: It’s like having a kindergartner’s report card and extrapolating from that what they’ll be doing in college, which is essentially what you’re getting with the SpaceX financial statements,” he said.

By the way, nothing is stopping SpaceX from pivoting its business strategy in big ways as the business environment evolves.

And that wouldn’t be unprecedented. Almost every major successful company makes big changes that aren’t mapped out in any prospectus. Apple, Alphabet, Microsoft, Amazon, and Meta Platforms all earn billions every quarter from businesses almost no one imagined they would be in.

The big picture 🖼️

All of this speaks to the challenge of picking stocks.

It’s just not enough to know the ins and outs of a company’s flagship offerings and the customers it sells to.

You also need confidence that management will reallocate capital optimally as business opportunities evolve.

On top of all that, history also shows that most companies fail to evolve and execute in ways that generate worthwhile stock returns.

That said, I think it’s a worthwhile exercise to build financial models in an attempt to estimate a company’s valuation. Among other things, it helps you understand what the company’s current price implies about future expectations. But don’t be surprised to learn the assumptions you make in the modeling process prove to be way off.

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Related from TKer:

• Some thoughts on mega IPOs and market indices...🚀

• Market forecasters face a ‘garbage in, garbage out’ problem 🗑️

• The hardest part of valuing a company 🔮🧮

• Apple after Cook, Allbirds after shoes 🍎🐦

• Sometimes, the best business decision is to change businesses 💔

• Berkshire’s new CEO makes clear what this business is really about 🎯

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 adding 1.0% to end at 7,489.72. The index is now down 1.6% from its June 2 closing high of 7,609.78 and up 9.4% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏛️ Fed holds rates. On Wednesday, the Federal Reserve kept its benchmark interest rate target range at 3.5% to 3.75%.

Three members of the FOMC (Hammack, Kashkari, and Logan) dissented in favor of a 0.25% rate hike.

From the Fed’s policy statement: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”

For more on what Fed policy could mean for markets, read: Does the stock market test new Fed chairs? 🏛️ and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🎈 Fed’s preferred inflation measure cooled, but remains elevated. The personal consumption expenditures (PCE) price index in June was up 3.7% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.3% during the month, down from May’s 3.4% rate.

On a month-over-month basis, the core PCE price index was up 0.13%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 2.9%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, how price trends evolve in the near term bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices remain above $4. From AAA: “The national average for a gallon of regular gasoline is the same as it was last week: $4.09. Crude oil prices remain in the $80 per barrel range as instability lingers along the Strait of Hormuz. Gas prices are nearly a dollar higher than they were this time last year. Typically, August brings some relief at the pump as road trips wind down and fall routines get underway for many families. But elevated crude oil prices could prevent that seasonal shift from starting just yet.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.7% month-over-month in June to an annual rate of $22.06 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures increased 0.3% from the prior month to another all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In June, the saving rate stood at 2.7%, the lowest level since June 2022.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.1% y/y in the week ending Jul 25, according to BAC aggregated credit & debit card data. The pickup from last week was partly driven by higher gas prices following the re-escalation of the US-Iran conflict. Ex-gas spending rose a more modest but healthy 3.3% y/y. Dept. stores spending growth saw the biggest increase vs last week.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 197,000 during the week ending July 25, up from 188,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.782 million during the week ending July 18.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is cooling. According to payroll processor ADP, private U.S. employers added 15,000 jobs in the four weeks ending July 11.

For more on the labor market, read: Things are looking up in the labor market 👍

💵 Key labor costs metric was stable. The employment cost index in Q2 was up 0.9% from the prior quarter.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 0.9% to a record $85.1 billion in June.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

👎 Consumer vibes deteriorate. The Conference Board’s Consumer Confidence Index declined by 1.4 points in July. From the report: “The Present Situation Index was less positive for a third consecutive month while the Expectations Index remained in negative territory. Consumer appraisals of current business conditions and, to a lesser extent, perceptions of the current labor market both softened. Looking ahead, consumers anticipate little improvement in business conditions over the next six months, but expectations for the labor market were slightly less negative. Expectations for household incomes moderated but remained optimistic overall.”

More from the report: “On a six-month moving average basis, by age, confidence for consumers under 35 remained the highest, while confidence among those aged 35-54 showed the greatest improvement. By income, confidence was mixed, but generally higher-income groups were more optimistic. By generation, confidence for Gen Z and Millennials remained the highest, while confidence fell the most for the Silent Generation on a six-month moving average basis. By political affiliation, confidence among Independents and Democrats softened while Republicans were somewhat more positive.

Meanwhile, the University of Michigan’s Surveys of Consumers showed that while sentiment improved in July, it remains weak. From the survey: “Broad-based improvements were seen across all groups by income, education, wealth, age, and political party. Five-year expected business conditions reached a 12-month high, though it remains well under its historical average. Despite recent gains, sentiment is 11% below a year ago, reflecting a generally somber view of the economy amid five years of elevated inflation and persistent high prices. Consumers remain focused on pocketbook issues like purchasing power, while political or military developments remain more in the background.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market continued to soften in July. 24.6% of consumers said jobs were ‘plentiful,’ down from 25.5% in June. Conversely, 21.5% of consumers said jobs were ‘hard to get,’ down slightly from 21.7%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). The direction of the spread reflects a cooling sentiment toward the labor market.

More from The Conference Board: “In July, consumers were less negative about the labor market outlook. 16.7% of consumers expected more jobs to be available in July, up from 15.6% in June. Additionally, 25.3% anticipated fewer jobs, down slightly from 25.5%.“

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.66%, up from 6.58% last week. From Freddie Mac: “The housing market continues to benefit from more available inventory, providing prospective homebuyers with additional options and helping support buyer activity as mortgage rates fluctuate.“

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Home prices cool. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.1% year-over-year in May but declined 0.05% month-over-month. From S&P Dow Jones Indices’ Rebecca Kaufman: “Affordability remains a significant headwind for the housing market. Thirty-year mortgage rates increased to 6.5% in May, leaving the ultra-low 3% borrowing costs a distant memory. At the same time, stubbornly high inflation rates are keeping both the cost of home financing and the cost of living high for prospective buyers. Against this backdrop, housing demand remains constrained, elevated borrowing costs continue to discourage potential homebuyers, and housing values decline in real terms for existing homeowners.”

For more on how home prices and how they may be affecting saving, read: A contrarian note about the falling personal saving rate...💸

🐇 GDP growth cooled in Q2. U.S. GDP grew at a 1.5% rate in Q2, down from 2.1% in Q1. Consumption and investment led growth, more than offsetting the drag from a wider trade deficit.

Because the GDP calculation has several quirks, economists often point to “real final sales to private domestic purchasers” to better understand the economy's underlying health. Sometimes referred to as “core” GDP, this metric excludes net exports, inventory adjustments, and government spending. That metric grew at a 3.9% rate in Q2.

For more on how GDP relates to the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.0% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

According to FactSet, the S&P 500’s net profit margin is on track to rise to 15.7% in Q2, the highest level since FactSet started tracking the metric in 2009.

A significant driver of this increase came from Alphabet, which reported a…

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But just because I think the stock market is likely to trend higher in the long run doesn’t mean that I think everything is sunshine and rainbows.

There are some things I think that are arguably cynical that, for better or worse, are things that I’d argue are bullish for stocks.

I think we consume and waste too much

Some of us are better at responsible spending. Some of us can’t afford to be wasteful. But many of us just buy too much stuff. We buy clothes we don’t wear, food we don’t eat, toys we don’t play with, kitchenware we don’t use, home decor we don’t put out, subscriptions to newspapers we don’t read, and memberships to gyms we don’t go to.

I’m not one to judge. Just in the past two months, I’ve arguably spent far too much money on World Cup memorabilia and soccer jerseys that are destined for a box in the back of a closet. But I think it all makes me happy or something. And I think I can afford it.

That said, this behavior is bullish because all this spending keeps a lot of people employed at the companies selling all this stuff. That means those employees will have money to buy stuff, and many of the companies selling stuff are publicly traded in the stock market we invest in.

I think we move past tragedies a little fast

I was surprised by how quickly cruising and airline travel recovered and broke records after the COVID-19 pandemic had many of us grounded. Generally speaking, I’m surprised by how quickly we return to our pursuits of happiness after some incredibly horrible news.

Of course, everything is relative. We all have our own way of dealing with things. And when a tragedy hits closer to home for you than for others, you’ll probably take more time than others to return to your normal life.

To be fair, there are many good reasons to move on quickly. Your children won’t stop growing, and your body won’t stop aging. We can’t put our lives on hold forever. We only have so much time on earth to enjoy it with each other. And at the end of our journeys, I’m sure we’re less likely to regret moving on too quickly.

And similar to what I said earlier, taking your kids to Disney World, celebrating that birthday party, and going to that after-work happy hour all put money back into the economy, which puts people to work. And when people work, they have money to spend. Maybe the Disney employee or bartender will even buy the products from whatever company employs you.

I don’t think public companies are trying to make the ‘best’ products

Big, publicly traded companies make pretty good products. But while a publicly traded company might sell more hamburgers than any other restaurant on the planet, I think many of you would agree that the best burger isn’t made by a multi-billion-dollar corporation. It’s made at that local hotspot most people don’t know about. Or maybe you make the best burger.

There are many products and services sold by publicly traded companies, which I’m sure you know can be improved on significantly while still being profitable. But there’s a big difference between being profitable and being increasingly profitable. And publicly traded companies aim to be the latter, as their priority is to increase shareholder returns, not to sell the best product.

So this means pushing the limits of changing a product to appeal to the largest possible audience while cutting costs in every possible way. Eventually, you’re left with a product you’re almost certain to complain about, but you buy it anyway. I’m sure that sounds familiar.

But hey, if you own a big diversified portfolio of stocks, you’ve at least been cashing in on the earnings of the companies making these less-than-best products.

I think most of us will never be satisfied

No matter how good things are, I think most of us think things could be better. We could have more stuff. And that stuff could be better and cheaper.

As long as there is demand for better and cheaper stuff, there will be entrepreneurs innovating and eventually supplying this stuff.

The businesses providing better and cheaper stuff will see revenue grow. Some get big enough to get listed in the stock market. As revenue continues to grow, earnings will go up, driving stock prices higher.

This is the story of the stock market. New companies from new industries emerge, and they help drive the stock market higher. Over time, many of these companies go from leading to lagging. But by then, new companies and new industries emerge again, and the endless cycle continues.

The big picture 🖼️

These are just my opinions.

And there are complex feelings I have about other big issues, including inequality, healthcare costs, retirement, executive compensation, white-collar crime, economic policy, and social safety nets. But I’m still working on how to articulate them.

Ultimately, I see a lot of forces — some bleaker than others — incentivizing people across the wealth spectrum to innovate, work, earn, and spend in ways that fuel earnings growth and in turn send the stock market higher.

To be crystal clear: I’m not suggesting I believe any of this is good. I just think they help explain why the stock market does what it does.

-

Related from TKer:

• Berkshire’s new CEO makes explicitly clear what this business is really about 🎯

• Publicly traded companies are not charities 💸

• The hardest part of valuing a company 🔮🧮

• We’re taking that vacation whether we like it or not 🛫

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 0.6% to end at 7,411.98. The index is now down 2.6% from its June 2 closing high of 7,609.78 and up 8.3% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 187,000 during the week ending July 18, down from 209,000 the week prior. It was the lowest weekly print since September 1969. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.796 million during the week ending July 11.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is cooling. According to payroll processor ADP, private U.S. employers added 16,500 jobs in the four weeks ending July 4.

For more on the labor market, read: Things are looking up in the labor market 👍

💳 Card spending data is holding up. From BofA: “TTotal card spending per HH was up 3.5% y/y in the week ending Jul 18, according to BAC aggregated credit & debit card data. Spending growth remains healthy but has slowed, likely due to unfavorable base effects from Prime Day timing change vs 2025. Y/y lower-income spending growth has outpaced higher-income growth for the past two weeks, after lagging for over a year.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices jump. From AAA: “The national average for a gallon of regular gasoline jumped 15 cents from last week to $4.09. Most states are now averaging $4 per gallon or higher. Rising crude oil prices are behind the spike at the pump. Volatility along the Strait of Hormuz and instability in the region have pushed crude oil prices into the $90 per barrel range and could continue driving up costs during the second half of summer.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.58%, up from 6.55% last week.

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏘️ New home sales rose. Sales of newly built homes increased 1.6% in June to an annualized rate of 628,000 units.

New home sales figures come with a large margin of error. For more on this, read: Mathematical context can totally change the story 🧮

🤔 Economic activity survey signals a pickup in growth. From S&P Global’s July U.S. Flash PMI: “Brighter news out of the Middle East has helped restore

some confidence among US businesses in June, though the overall rate of economic growth signalled by the flash PMI survey remains relatively sluggish compared to that seen earlier in the year in the lead up to the conflict. The survey signals that current output levels are consistent with the economy struggling to grow much faster than a 1% annualized rate in the second quarter.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s June State Coincident Indexes report: “Over the past three months, the indexes increased in 46 states and decreased in four states, for a three-month diffusion index of 84. Additionally, in the past month, the indexes increased in 42 states, decreased in three states, and remained stable in five, for a one-month diffusion index of 78.”

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

It is extremely challenging to predict short-term market movements with accuracy. This is reflected in the fact that forecasters frequently revise their targets as the year unfolds.

However, these targets tell us something about Wall Street sentiment. And the research supporting these forecasts can be very interesting.

Most Wall Street firms publish their official annual forecasts for the stock market in November and early December. But one prominent strategist unveiled his 2027 target this week.

Read more

There are well-known risks that are at least somewhat priced into the markets. They are the lingering fears that are covered regularly in the news and surfaced in surveys. As long as new developments related to these risks aren’t much worse than what’s in the range of likely outcomes, markets can handle bad news relatively well.

And there are risks that are not well known, not widely discussed, and not priced into the markets. They often emerge as an unexpected shock event, which is when many market participants decide it’s time to price it in. The nature of the risk isn’t always the most problematic issue for investors. But the introduction of uncertainty alone is enough to send prices lower.

With that in mind, let’s talk about some risks.

What people are worried about 😬

A bunch of firms recently conducted surveys asking people what they’re worried about.

Let’s go through some of the findings.

According to PwC’s Market Volatility Survey released last week, financial services executives’ top concerns include geopolitical events, inflation, interest rates, and government policy uncertainty. Consumers are particularly concerned about inflation, followed by interest rates and stock market volatility.

McKinsey’s June Economic Conditions survey revealed that executives saw geopolitical instability and energy prices as leading risks to global economic growth.

Natixis surveyed market strategists about their top concerns. Leading the way was inflation and the Iran war’s impact on oil prices. Strategists were also broadly concerned about how weak consumer confidence could hinder consumer spending.

Meanwhile, BofA’s July Global Fund Manager Survey showed that participants ranked “AI bubble” as their biggest “tail risk.” That was followed by inflation, bond yields, and geopolitical conflict.

Each survey covers different types of people, and they all word questions differently.

That said, it seems people are generally concerned about inflation, geopolitics, and the stability of the stock and bond markets.

None of this is particularly surprising, as they are the stories dominating the news cycle in business media.

What’s worrisome is what’s not on these lists ⚖️

As TKer Stock Market Truth No. 7 reminds us, there will always be something to worry about.

It’s an inescapable reality of investing in the stock market.

On the bright side, these worries get priced into the market as a discount, which helps to explain why investor returns in the stock market tend to be relatively high.

When investors and traders are aware of a certain risk, they tend to adjust market prices in a way that anticipates the likelihood that a risk event could materialize to some degree. If the event comes to fruition and it’s not as bad as feared, markets tend to react positively. In other words, there are scenarios where bad things happen, and stocks rally.

It may seem counterintuitive. But it’s a positive for investors that there are many things the market is actively worried about. It keeps the market in check and less vulnerable to stomach-churning price swings.

On the other hand, the most destabilizing risks are the ones people aren’t talking about. The unknown unknowns. This is TKer Stock Market Truth No. 8.

Every once in a while, we get an event that’s out of mind or considered extremely unlikely. Consider the attacks on Iran earlier this year, the announcement of sweeping tariffs last year, the failure of Silicon Valley Bank three years ago, or the emergence of COVID-19 six years ago.

Even if these sudden shock events prove benign to economic activity and corporate earnings, the introduction of uncertainty alone is enough to compress valuations and send stock prices lower.

Unfortunately, there’s not much you can do about these unknown unknowns. There’s no knowing what’s coming and when they’ll emerge (unless you’ve got some inside information). There’s also the possibility they’ll never emerge.

The best we can do is understand that sometimes, things will come out of nowhere and send shockwaves through the markets. And given a little time, these things become another one of those more manageable risks that surface on many surveys for months.

The good news is that the stock market has a long history of recovering from unexpected shock events, which means any drop in prices has proven to be a buying opportunity for long-term investors.

An important note on consumers, businesses, and earnings 🤔

It’s not just markets that adjust when traders become aware of new risks. Given time, consumers and businesses adjust as well.

Consumers will make tweaks to their spending and saving behavior. Maybe they’ll work more or change jobs to address new realities.

Businesses will reorganize and restructure their operations, including adjusting supply chains and moving workforces, all with the intent of preserving earnings growth and creating shareholder value.

All this is to say that the economy doesn’t take risks lying down. So, in addition to considering the challenges presented by risks, investors should also think about what could go right.

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Related from TKer:

• ‘The thing I really want to emphasize is that nobody knows’ 🤷🏻‍♂️

• When uncertainty becomes unambiguously high 🎢

• The most destabilizing risks to the stock market 📉

• For markets, there’s one thing worse than bad news 📉📈

• The hardest part of valuing a company 🔮🧮

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 1.5% to end at 7,457.69. The index is now down 2.0% from its June 2 closing high of 7,609.78 and up 8.9% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏦 America’s top banks confirm that the economy remains resilient: From JPMorgan’s Jamie Dimon: “The U.S. economy has demonstrated notable resiliency this year, with stronger business investment and hiring. This strength is being supported by several tailwinds, including AI-driven capital investment, fiscal stimulus, and the benefits of more efficient regulation. However, several risks are shifting below the surface like tectonic plates, including geopolitical tensions and wars, sticky inflation, large global fiscal deficits, and elevated asset prices. We cannot predict how these forces will ultimately play out. They may remain manageable, but they could also cause meaningful disruptions when they shift or collide.”

Here’s Wells Fargo’s Charlie Scharf: “Consumers and businesses remain very strong. Consumer spending is higher, charge-offs and delinquencies are lower, and savings and investments are growing across consumer segments. Businesses are cautious, but balance sheets and cash flows remain strong, resulting in strong credit performance. Equity indices are at or near all-time highs, credit spreads are narrow, and there is a significant amount of liquidity being deployed by banks and non-banks. Concerns around affordability and inflation exist, but the labor market and wage growth remain strong. We know that such favorable conditions do not go on forever, so we are being selective about how much and where to grow. Our goal is to build sustainable higher returns and higher growth that can endure the inevitable market shocks and economic cycles.”

And BofA’s Brian Moynihan: “Against a healthy economic backdrop, resilient consumers and businesses are turning to Bank of America to spend, borrow and invest.”

These statements echo what was said three months ago. For more, read: America’s top bankers confirm: The economy remains resilient 💪

🛍️ Retail shopping activity rose. Retail sales in June increased 0.2% to a record $768.6 billion, as lower spending on gasoline was more than offset by strength in other categories.

Excluding autos and gas, which tend to be volatile in the short term, retail sales climbed 0.4%.

Here’s a look at nominal sales by category.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.5% y/y in the week ending Jul 11, according to BAC aggregated credit & debit card data. Spending growth slowed but remains solid, likely due to unfavorable base effects from Prime Day timing change vs last year. Divergence in restaurants spending growth between host cities & rest of U.S. persists despite number of games coming down.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes improve slightly, but remain in the dump. From the University of Michigan’s July Surveys of Consumers: “With the second straight month of 10% jumps, consumer sentiment climbed to its highest reading since February of this year on the basis of easing price pressures at the pump in recent weeks. All five index components improved, led by significant 20% increases in buying conditions for durables as well as year-ahead business conditions. This month’s rise in sentiment was pervasive across the population, seen across groups by age, income, wealth, and political party. Particularly strong increases were seen among consumers without a bachelor’s degree. However, with prices remaining frustratingly high, consumers are hardly ebullient about the economy; sentiment is down 12% from a year ago. Thus, sentiment’s upward momentum may prove difficult to sustain if recent declines in gas prices continue to reverse course. Interviews for this release spanned June 23 to July 13, with more than 70% completed before the resumption of US strikes against Iran on July 7 and the subsequent increase in gas prices.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🎈Consumer price inflation cooled as gas prices fell. The Consumer Price Index (CPI) increased 3.5% year-over-year in June, down from 4.2% the month prior, as energy prices declined. Adjusted for food and energy prices, core CPI was up 2.6%.

On a month-over-month basis, CPI declined 0.4% as energy prices fell 5.7%. Core CPI was relatively flat, ticking down by just 0.02%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 2.3% and 2.6%, respectively.

While inflation rates have cooled over the years, they remain above the Fed’s 2% target rate.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices tick up. From AAA: “The national average for a gallon of regular gasoline went up 10 cents since last week to $3.94. Instability along the Strait of Hormuz is contributing to the increase at the pump and pushing crude oil prices toward $80 per barrel.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 208,000 during the week ending July 11, down from 216,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.805 million during the week ending July 4.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is positive. According to payroll processor ADP, private U.S. employers added 19,750 jobs in the four weeks ending June 27.

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Homebuilder sentiment ticks lower. From the NAHB: “With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market. Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.”

🔨 New home construction starts fell. Housing starts jumped 19.0% in June to an annualized rate of 1.43 million units, according to the Census Bureau. Building permits fell 3.0% to an annualized rate of 1.37 million units.

It’s worth noting that the starts metric comes with a very large margin of error. For more on margins of error, read: Mathematical context can totally change the story 🧮

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.55%, up from 6.49% last week. From Freddie Mac: “Purchase application demand has weakened recently, but housing affordability is more favorable and housing inventory continues to rise, thus the backdrop for prospective homebuyers is modestly improving.”

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🛠️ Industrial activity increased. Industrial production activity in June rose 0.1% from prior month levels. Manufacturing output was unchanged compared to the prior month.

👎 Small business optimism ticks higher, remains cool. The NFIB’s Small Business Optimism Index rose to 97.4 in June from 95.3 in May. From the NFIB: “Current economic conditions present small business owners with both encouraging developments and ongoing challenges. Lower fuel costs provide welcome relief for businesses as well as consumers, with firms anticipating improved operating conditions over the next six months. While there have been improvements in the overall environment, high interest rates and modest economic growth are causing owners to approach hiring and capital spending with caution.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

😬 This is the stuff pros are worried about. From BofA’s July Global Fund Manager Survey: “‘AI bubble’ rose to the top spot for the biggest tail risk in July per 45% of FMS investors (up from 28% last month). In June, the #1 perceived tail risk was ‘2nd wave inflation’… this has dropped to #2 (26% of investors, from 34%).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Three observations about uncertainty in the markets 😟 and Two times when uncertainty seemed low and confidence was high 🌈

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 1.7% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

Some of that news can affect the earnings of publicly traded companies. Sometimes it’s clear how. Other times, not so much.

For investors, it’s important to understand how news affects earnings — because earnings and expectations for earnings growth are the most important long-term drivers of stock prices. (I’ve explained this in TKer Truth No. 5.)1

But this is not easy to do. So, I’m here to help.

Early in my career, I spent the bulk of my time analyzing public company financial statements. Since then, I’ve found it helpful to think about news items in the context of how they could affect the various line items in these statements, particularly the income statement.

Below, I break down my mental framework for thinking about news. I’ve included some charts for historical context. And it’s all organized like a basic income statement.2

Read more

The first chart came from Citadel’s Scott Rubner.

It shows the correlations among S&P 500 stocks, basically the degree to which stocks move together. A high correlation suggests stocks are largely moving in tandem, whereas a low correlation means they are moving independently.

Rubner’s data shows that correlations have fallen to their lowest level in at least 15 years.

Because low correlation means stocks are diverging from the S&P 500 average, this implies there are more opportunities to trade individual stocks in ways that outperform the market. Therefore, it’s a “stock picker’s market.”

But just because there may be more ways to beat the market doesn’t mean it’s easier to do so.

In these low-correlation markets, you can just as well be overweight stocks that underperform the S&P while being underweight stocks that outperform. Either move would have you doing worse than the market average.

Fundstrat’s Hardika Singh recently highlighted some of the S&P’s big outperformers and underperformers behind a relatively modest move in the market averages over the past few weeks. From her Friday note:

Since memory and storage stocks peaked on June 22, the S&P 500 has gained close to 1%. But moves within single stocks have been much more volatile. Micron shares are down 18% over that period, Sandisk has fallen 18%, and Intel has tumbled 20%. Concerns that Big Tech has overbuilt AI infrastructure have dragged down highflying semiconductor stocks.

The reason why the index hasn’t been hurt by that is that those big declines have been canceled out by even bigger gains from other sectors of the market like financials, industrials, and healthcare. For example, Moderna’s stock is up 29%, while Axon Enterprise has added 42% since June 22.

Again, getting these trades wrong means underperforming the market, potentially by a wide margin.

To be fair, many folks are successful at trading such that they outperform the market. But most fail to do so.

Lower stock correlations don’t appear to be correlated with active manager outperformance 🤔

Notice in Rubner’s chart that correlations have mostly trended lower over the past 15 years. If lower correlations meant it was becoming easier to trade individual stocks, you would think more actively managed equity funds would be outperforming the market.

However, S&P Dow Jones Indices’ data show that most actively managed large-cap equity funds have underperformed the S&P 500 over the years at a somewhat consistent rate. In fact, 2025 saw active managers’ third-worst performance in the past 15 years.

According to BofA’s US Mutual Fund Performance Update report, just 38% of large-cap active funds have outperformed their Russell benchmarks in the first half of 2026. Low correlation between stocks does not appear to be helping most active managers.

One of the key challenges with picking stocks is that few stocks produce above-average returns for any extended period. And very few generate eye-popping returns, which heavily skew how the market averages are calculated.

So, if you fail to pinpoint and get exposure to some of these few winning names, you’re likely to have disappointing returns.

Maybe a lot of ‘buy’ ratings are a good thing 🤔

That brings me to another chart that had me thinking some contrarian thoughts about stock picking.

From FactSet’s John Butters, this chart shows the distribution of analysts’ buy, hold, and sell ratings for individual S&P 500 stocks. Some of you might be surprised, but the vast majority of the analysts’ 12,840 ratings are buy and hold, and very few are sell.

When you consider the historical evidence that shows most stocks tend to perform poorly, you might make a snarky comment about how analysts’ bullish ratings are a disservice to those trading on these calls. And you probably have a good point.

I’ll offer a different view: Buying or holding many different stocks increases the odds that you’ll have exposure to the companies generating the extraordinary returns that lift your entire portfolio's performance.

In other words, if all these buy and hold ratings get you to build a diversified portfolio of many stocks, then maybe that’s a good thing.

Of course, this assumes the big outperformers in the stock market aren’t lost in those sell ratings.

The big picture 🖼️

I’m sure there are some good stock pickers out there who do exceptionally well during periods of low correlation. But that’s different from suggesting that low correlation means more people can become successful stock pickers.

To be clear, I don’t think there’s anything inherently wrong with investing in specific businesses you believe in or stocks you think offer extraordinary value. Your gut instincts and research about certain industries will sometimes be better than the market consensus.

But I’d think twice when you hear phrases like, “It’s a stock picker’s market.” Just because more stocks are diverging from the market average doesn’t necessarily mean it’s easier to pick market-beating stocks.

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Related from TKer:

• Most stock-picking pros underperformed in 2025’s market rollercoaster 🫤

• The first half of 2026 confirmed a valuable stock market lesson 🤔

• Analysts, companies, and their complicated relationship with earnings estimates 🤝

• The merits of diversification were on full display 🍾

• Let’s take a moment to appreciate the benefits of diversification 🙏

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 adding 1.2% to end at 7,575.39. The index is now down 0.5% from its June 2 closing high of 7,609.78 and up 10.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💳 Card spending data is holding up. From BofA: “Heading into the summer, consumer spending momentum was very strong, with total credit and debit card spending rising 6.3% year-over-year (YoY) in June - the strongest growth in over four years - according to Bank of America internal card data. With gasoline prices falling, the increase in spending growth is almost entirely a discretionary story.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices tick up. From AAA: “Gas prices are going up again, as the future of the ceasefire between the U.S. and Iran remains uncertain. The national average for a gallon of regular gasoline went up 5 cents overnight to $3.84 after steadily dropping since late May. Crude oil prices are currently in the $70 per barrel range but could rise if volatility lingers along the Strait of Hormuz. Prices are still lower than they were in the spring when the national average peaked at $4.56 on May 21.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🎈 Inflation expectations heat up. From the New York Fed’s June Survey of Consumer Expectations: “Median inflation expectations at the one-year-ahead horizon increased by 0.2 percentage point to 3.7% in June, the highest level since September 2023. They also increased by 0.2 percentage point to 3.3% at the three-year horizon, the highest level since June 2022. Median expectations at the five-year horizon were unchanged at 3.0%.”

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 215,000 during the week ending July 4, down from 227,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.814 million during the week ending June 27.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 57,000 jobs in June. The three-month moving average has declined to 111,000.

Total payroll employment rose to a record 158.98 million jobs in June.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — declined to 4.2% in June.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in June. On a year-over-year basis, June’s wages were up 3.5%.

💰 Job switchers get better pay. According to ADP, annual pay in June for people who changed jobs was up 6.5% from a year ago. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers watch wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.584 million job openings in May, up from 7.585 million in April.

During the month, there were 7.31 million unemployed people — meaning there were 1.04 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.71 million people in May. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.17 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In May, 3.07 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

👎 Consumer vibes improve slightly, but remain in the dumps. The Conference Board’s Consumer Confidence Index climbed 0.6 points in June. From the report: “Consumer confidence inched up in June as falling oil prices in recent weeks provided some relief to consumer inflation fears. Consumer appraisals of current business conditions were slightly more positive compared to last month.”

More from the report: “Among age groups, confidence for consumers under age 35 remained the highest, but confidence for all age groups trended downward on a six-month moving average basis. By income, on a six-month moving average basis, confidence was mixed or little changed across all categories. By generation, confidence fell the most for the Silent Generation but was stable or lower for others on a six-month moving average basis. By political affiliation, confidence among Independents and Democrats rose while Republicans were somewhat less positive on a month-over-month basis.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market worsened in June. 24.9% of consumers said jobs were “plentiful,” up slightly from 24.8% in May. Conversely, 22.5% of consumers said jobs were “hard to get,” up from 19.8%.”

More from The Conference Board: “On net, consumers’ negative stance about the labor market outlook was largely unchanged in June. 15.2% of consumers expected more jobs to be available, down from 16.6% in May. However, 25.6% anticipated fewer jobs, down from 27.0%.“

For more on the labor market, read: Things are looking up in the labor market👍

🏚 Home sales declined. Sales of previously owned homes fell 2.4% in June to an annualized rate of 4.09 million units. From NAR chief economist Lawrence Yun: “The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions. However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

Prices for previously owned homes rose from last month and year-ago levels. From the NAR: “The median existing-home sales price for all housing types in June was $440,600, up 1.8% from one year ago ($432,700) – the 36th consecutive month of year-over-year price increases.”

From Yun: “The median home price has reached an all-time high. Even so, affordability is better than a year ago because wage growth is outpacing home price growth. However, progress on long-term housing affordability could be hampered if inventory growth continues to stall. Without consistent gains in inventory, home prices can accelerate. It is critical to introduce more supply to the market to widen the opportunity for homeownership.”

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.49%, up from 6.43% last week. From Freddie Mac: “Mortgage rates have not changed much recently, but economic growth and housing affordability continue to improve for homebuyers as they shop for homes in today’s market.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖