Markets have always had ups and downs, but there are times when the headlines point more to downs while stocks deliver more ups. This seems to be one of those times — stocks have held strong 2026 returns, with the Nasdaq setting a fresh all-time high this week, even as the list of investor concerns stays long. The "wall of worry" stocks keep climbing includes geopolitical conflict, rising interest rates, and questions around artificial intelligence. Any one of these could spark volatility, though none has recently. What's supporting stocks through all of it — and should we expect it to last?
Let's start with the positives. Corporate fundamentals remain supportive: S&P 500 earnings are still growing rapidly, potentially approaching 40% for the third quarter once all the numbers are in. The big tech companies building data centers have been spending heavily, but the broader cash flow picture still looks healthy.
The economy has shown resilience too, helped by strong household balance sheets and the low fixed-rate mortgages locked in during the pandemic, which are making consumers less sensitive to higher rates. And the AI buildout is creating opportunity beyond the tech giants building it — supporting demand for semiconductors, memory, and infrastructure equipment along the way.
There are real risks to watch, of course. There always are. Right now the biggest one for markets might be rising interest rates. Higher Treasury yields raise borrowing costs and can pressure stock valuations, raising the odds of short-term pullbacks and limiting how far stocks can run. High oil prices, Fed rate hikes, solid economic growth, budget pressures here and in Europe, and corporate borrowing to fund the AI buildout are all pushing rates up — and that pressure may not fade soon. But before you get the urge to sell stocks, keep in mind that 5% Treasury yields were normal before the financial crisis, back before quantitative easing was a household term. The 10-year spent much of the late 1990s near 6%.
Two more risks worth naming. Companies pouring capital into AI need to show real productivity and profit gains to justify the spending. And energy disruptions in the Middle East could keep inflation elevated and weigh on confidence. On politics: markets have historically handled gridlock fine, but election uncertainty can still spark bouts of volatility.
Our take: stay diversified. That means balancing AI beneficiaries with attractive income opportunities and some commodity-linked exposure as a hedge against macro risk. There are genuine uncertainties — but corporate profitability and steady economic growth give us a solid foundation for staying the course.
Thank you for your continued trust. As always, please let me know if there is anything I can do for you or someone you care about.
Sincerely,
Ed
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