FPI August 2026 Economic Update
Bob Kramer - August 5, 2026
Greetings everyone. This is Bob Kramer giving you your August economic update. Well, the second quarter of 2026 really started out as a bang in the earnings per the S&P 500. Those companies, the largest 500 companies in America, posted a very positive earnings per share. In fact, this year it was the strongest overall profit growth in five years led by the tech and consumer sectors.
As you've heard from me before, I am a strong believer that understanding earnings or the earnings per share of a company is a very strong indicator of whether that company is going to show a profit in the stock market. It doesn't always happen, but earnings are really key. So, the second quarter has come and gone. 86% of the S&P 500 met or exceeded earnings expectations, which is very good.
However, this year is kind of different on a couple of different fronts. First of all, the mega caps, the very large companies we've talked about, such as Apple, Microsoft, and some of the big companies like Tesla, really haven't shown that great of a profit as they have in the past. It is the smaller companies that are participating. Oftentimes I refer to the Russell 2000. Those are 2,000 companies where we look at a small cap indicator, and this is showing that those companies are participating in the market much more. I believe that this is showing a much healthier market than just relying on S&P 500 companies. So many people just use that index as a barometer. But the participation of smaller companies is healthy.
Also, another thing that has become a phenomenon is international companies have really shown very favorable growth. International companies have actually shown greater profitability just recently than the S&P 500. That is another big change that we've seen in the markets. In terms of technical indicators, the technicals we follow, international is now in first place, followed by the large S&P 500 companies in the United States. And then thirdly, are commodities. Commodity prices have come way up.
Now, the two things that I'm kind of concerned about that could put a halt to this nice rally—the stock market is up about 10% this year—would be if we cannot resolve this war. If the war continues to extend itself not only months but years from now, that could really hinder the profitability of the stock market. Secondly, interest rates have held steady. That's been a good foreboding for the third quarter. If they keep interest rates steady or maybe even drop them a little bit, that could be very favorable for the market in the future.
However, inflation has always been part of the narrative, and the Fed is really going to take a close look at where inflation numbers are coming in. Certainly, a very important component of that is energy and energy prices. Once the war does escalate, energy prices do spike up, and that is not good for inflationary factors as it affects just about everything.
So, stay tuned. We are closely watching the market. We feel very good about where we're at right now in terms of earnings and participation, but there can be changes, as we well know. So far, the trend is your friend. The trend is favorable. Let us know if there's anything that we can do in the near future. Have a great rest of your summer, and we'll talk soon. Take care.
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