Wall of worry

Second quarter earnings for the S&P 500 were exceptionally strong, growing 52% year-over-year. This beat expectations by a wide margin and marked the highest growth since early 2021. Revenue growth also surprised to the upside, and net profit margins hit a record high.

This has fueled a significant rally in equities and driven Treasury yields higher. However, the market is now on edge due to escalating energy prices from the renewed conflict with Iran and potential inflation from tariffs. The Fed's upcoming September meeting is a key event, with the market largely pricing in a rate hike.

Despite these headwinds, underlying economic fundamentals remain robust. Employment growth has accelerated, and consumer and manufacturing activity show solid expansion. While confidence has dipped, likely due to geopolitical risks, core inflation has shown recent moderation. Investors should brace for continued volatility as the Fed navigates these competing pressures.