EverPar Director of Investments David Ellis breaks down what is driving markets to record highs, why the 30-year Treasury matters, and how we are positioning portfolios heading into September.
By David Ellis, EverPar Advisors
Every quarter there are a handful of things worth stepping back and addressing directly with clients. This quarter, the question I keep getting is some version of the same one: markets are at record highs, so how nervous should I be?
It is a fair question. We have had twenty-seven record closes this year, with the most recent record close coming in at 7,798.99, just below the 7,800 level the index also traded above intraday for the first time. We are sitting about one percent off that high after a strong summer. Michael Christian and I sat down to work through what is actually behind that, and I wanted to expand on a few points here.
What is Holding Up This Market
The most important thing to understand about this rally is that it is being driven by earnings rather than by enthusiasm.
Second quarter profits were up roughly 50% from the year before. Eighty-six percent of the companies that reported beat their expectations, against a five year average of 78%. Profit margins reached 16.9%, the highest level since FactSet began tracking that measure in 2009. Corporations in the US are functioning well, and that flows through to the broader economy.
The AI and data center cycle is part of this, and the earnings there are real rather than speculative. Nvidia’s earnings have roughly doubled over the past year. We do keep the concentration risk inside that leadership at the front of our minds.
Inflation also stopped getting worse. The July reading came in better than expected at a tenth of a percent, and producer prices were flat.
What is different about this market compared with the last two years is the breadth. Large cap, small cap, and international have all performed. All eleven S&P 500 sectors were positive on the year. That is a real change from 2023 and 2024, and it is the reason diversified portfolios have participated in this year’s gains rather than lagging them.
The Headwinds Worth Watching
I would be doing clients a disservice if I only covered the good news.
The 30-year Treasury hit 5.34% earlier this week, the highest it has been since 2007. The level matters less to me than the timing. We received encouraging inflation data in July and the long end of the curve continued to rise anyway. That tells you inflation is not what is pushing those rates higher. It is a supply issue. Washington ran a $432 billion deficit in July, the largest single month since March of 2021.
The way that reaches your portfolio is straightforward. When long rates rise, a dollar of future earnings is worth less today, and that hits long duration growth names hardest. Those are the same names that have been leading this market.
The Treasury stepped in and doubled buybacks on long dated debt, and the 30-year came back to about 5.2%. So this may not become a problem. But if long yields keep rising while the short end stays where it is, the high growth names are the ones most affected.
The labor market is the second item, and it is something of a catch-22. Weaker readings signal The labor market is the second item, and it is something of a catch-22. July payrolls fell by 23,000 against expectations of a gain, and revisions stripped roughly another 100,000 jobs out of May and June combined. Labor force participation eased to its lowest level since early 2021. Weaker readings signal a slowing economy. They also give the Fed cover to leave short term rates alone, because the Fed is weighing the labor market and inflation together.
The third is energy. Brent is back near $90 with the Strait of Hormuz closed and no talks currently scheduled. We do not expect these prices to hold long term. Once there is some resolution there, oil should come down fairly quickly and filter through to the pump. In the near term it is a headwind.
Headline Against Core Inflation
This is where the two numbers tell different stories, and it is worth understanding the difference.
Headline inflation is running about 3.4% year over year. Core inflation, which strips out food and energy, is at roughly 2.5%, the lowest in about five months. Energy prices remain up nearly 15% from a year ago, which is most of what is driving the gap between headline and core.
A year ago the conversation about inflation was about the print itself. Today it is about what inflation is doing to household budgets. Wage growth is running 3.2% against headline inflation of 3.4%. That is a modest gap, but on the math it works out to negative real income growth. July retail sales fell six tenths of a percent when a modest gain was expected. The consumer is starting to face a wall, and if consumers step back meaningfully, that works its way into earnings.
A New Fed Chair, and Less Forward Guidance
The Fed held its target range steady all year, and the July meeting marked the fifth consecutive hold. The committee voted nine to three, with all three dissents preferring a quarter point hike, the first time in nearly a decade that three dissents have landed in the same direction.
Chairman Warsh has said he thought there was too much transparency coming out of the Fed, and that the number of voices created more confusion than clarity. He intends to limit that. My own view is that this is a positive for markets.
On rates, the market is currently pricing roughly a 33% chance of a hike in September. The July meeting produced a nine to three vote, with three members favoring a hike, so there is a portion of the board looking to get closer to that 2% inflation target. Warsh has said he wants the data to drive the decision.
I would not say rates are going higher or lower because of who is running the Fed. He has answered plenty of questions in ways that run counter to what the administration would prefer. I think he does what he believes is right for the Fed and for the country. It is entirely possible we get through this year without a hike at all.
The inflation report lands September 11 and the Fed meets September 16, so the committee will have those numbers in hand.
How We Are Positioned
Our posture right now is to stay diversified across sector and size, and to avoid concentrating in the leadership of the S&P 500 even though that leadership has been earning its returns. On fixed income we are being deliberate about duration and prefer the intermediate space rather than reaching further out on the curve.
The Bottom Line
Real earnings, real capital investment, inflation moving in the right direction, and improved breadth. That is a reasonable foundation for a market at these levels. The long end of the curve is the thing I am watching most closely, and we got some relief there this week with the Treasury stepping in.
We will take in the September inflation report and the Fed meeting, and adjust from there. If you have questions about how any of this applies to your situation, reach out to your advisor directly.
Sources:
-S&P 500 record close of 7,798.99 (27th of the year): CNBC market report, corroborated by Seeking Alpha and Schaeffer’s. Link: cnbc.com/2026/08/13/stock-market-today-live-updates.html
-Q2 profit growth about 50 percent, 86 percent beat rate vs 78 percent five year average, 16.9 percent profit margin: FactSet Earnings Insight, 7 August 2026. Link: insight.factset.com
-Nvidia earnings roughly doubled: analyst commentary reported in press coverage of the AI earnings cycle, not verified against a company filing
-July CPI up a tenth of a percent: Bureau of Labor Statistics, CPI news release, July 2026. Link: bls.gov/news.release/cpi.nr0.htm
-Producer prices flat in July: Bureau of Labor Statistics, PPI news release, July 2026. Link: bls.gov/news.release/ppi.nr0.htm
-All eleven S&P 500 sectors positive year to date: U.S. Bank Asset Management Group market commentary, data as of 10 to 11 August 2026. Link: usbank.com
-30-year Treasury at 5.34 percent, highest since 2007: press coverage of the 18 August session. Note that this figure varies slightly by source and timestamp.
-432 billion dollar July deficit: U.S. Treasury, Monthly Treasury Statement. Link: fiscaldata.treasury.gov/static-data/published-reports/mts/
-Treasury doubling buybacks, 30-year easing to about 5.2 percent: reported same day as the announcement, 19 August 2026. Confirm current level before publishing, as this was breaking news at time of writing.
-July payrolls down 23,000, May/June revisions down about 100,000 combined, labor force participation at 61.4 percent (lowest since early 2021): Bureau of Labor Statistics, Employment Situation, July 2026. Link: bls.gov/news.release/empsit.nr0.htm
-Brent crude near $90, Strait of Hormuz closed: press coverage, 18 to 19 August 2026. Note this is a live market figure and should be re-checked before publishing.
-Headline inflation 3.4 percent, core inflation 2.5 percent, energy up nearly 15 percent year over year: Bureau of Labor Statistics, Consumer Price Index, July 2026. Link: bls.gov/news.release/cpi.nr0.htm
-Wage growth 3.2 percent: Bureau of Labor Statistics, Employment Situation, July 2026. Link: bls.gov/news.release/empsit.nr0.htm
-July retail sales down six tenths of a percent: U.S. Census Bureau, advance retail sales, July 2026. Link: census.gov/retail
-Fed target range unchanged all year, July vote 9 to 3, three dissents favoring a hike: Federal Reserve, FOMC statement, 29 July 2026. Link: federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm
-September rate hike odds moving from about 80 percent to 30 to 35 percent: CME FedWatch Tool. Link: cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Re-check the morning of publishing, as this figure moves.
-September 11 inflation report and September 16 Fed meeting: Federal Reserve FOMC calendar and BLS CPI release schedule. Links: federalreserve.gov/monetarypolicy/fomccalendars.htm and bls.gov/schedule/news_release/cpi.htm
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