WASHINGTON, Sept. 8 — The S&P 500 has generated a total return of 36% since the November 5, 2024, election through September 2, 2026, despite a nearly 20% decline in early 2025. The bottom line: corporate profits, not policy headlines, have carried the market. S&P 500 second-quarter revenue rose more than 16% from a year earlier, while earnings increased more than 53% — more than double analysts’ initial forecast for a second consecutive reporting season.
Analysts expect third-quarter revenue growth near 12% and earnings growth of 28%. The recovery took hold as consumer and business spending supported company revenue, record profit margins converted that revenue into record earnings, and investors looked beyond recurring policy and geopolitical shocks.
“Investors have overcome concerns about geopolitical conflict and trade announcements and focused on fundamental strength, namely corporate earnings growth,” said Bill Merz, head of capital markets research for U.S. Bank Asset Management Group. The advance has broadened beyond the largest technology-oriented companies. Smaller-company stocks rose more than 60% from their April 2025 lows through September 2, 2026, and gains across most S&P 500 sectors indicate investors see opportunities across more of the economy.
Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group, cautions that valuations leave little room for error. “Sustained earnings growth can support current valuations, but elevated stock prices leave companies less room to disappoint.” Consumer spending remains a major source of company revenue, although July data showed slower monthly momentum.
Retail and food-services sales fell 0.6% from June but remained 5.0% above July 2025 levels, while sales from May through July increased 6.3% from the same period a year earlier. Because retail-sales figures do not adjust for inflation, gains reflect both price increases and changes in the amount purchased. Motor vehicles and parts, online and other non-store retail, and gasoline stations led the July decline, while clothing stores, restaurants and bars reported monthly gains.
Households shifted where they spent rather than broadly retreating from consumption. Higher-income households continue to provide a large share of demand, while many middle- and lower-income consumers compare prices more closely and prioritize necessities. The labor market has lost momentum without entering a broad layoff cycle.
Employers reduced payrolls by 23,000 in July, and downward revisions left average payroll growth near 20,000 per month from May through July, while unemployment remained low at 4.1%. Average hourly wages rose 3.2% from a year earlier, providing income growth but less protection against higher prices than households enjoyed earlier in the expansion.
Low layoffs still support household income and spending; initial unemployment claims remain contained. Tax policy has supported household cash flow through two channels, including federal income tax changes. Fluid tariff policy, geopolitical conflict, slower hiring, and rising federal debt remain the principal risks to the 2026 stock market outlook.
Investors will note that the fundamental question into the fall is whether the third-quarter earnings forecast — near 12% revenue growth and 28% earnings growth — holds as spending patterns shift and hiring cools.
