Corporate America’s best earnings in 5 years are set to keep the AI trade humming

Good morning, investors. Wall Street kicks off one of its biggest data weeks of the summer with the S&P 500 sitting less than 1% from its all-time high.

Bank earnings begin Tuesday with inflation numbers publishing the same morning, and former Fed Chairman Jerome Powell testifies Wednesday.

Let’s start with earnings.

Earnings are the most important driver of any bull market and they are now shifting into their highest gear in nearly five years.

S&P 500 earnings are tracking above 23% year-over-year growth for the second quarter, but historical patterns have led FactSet to project the final figure will come in above 29%.

That would mark the highest growth rate since the end of 2021, when the index reported a 32% jump in earnings.

The early signals suggest that even 29% could be a conservative guess:

The pattern makes sense.

Companies clear the bar Wall Street sets, and each beat lifts the index’s actual growth rate that much further above prior estimates.

Even with modest assumptions, the market is on pace for its second quarter in a row of 20% profit growth or more.

As prevalent as bearish takes have become, this data is the real driver behind record-high stock prices.

Throughout history, bear markets have been born from earnings contractions.

That happened in 2022 when profit growth went from 32% to negative within a year.

“We tend to underestimate the resiliency of the equity market,” Simplify Asset Management portfolio manager Paisley Nardini told me on Full Signal. “We’ve been talking about an AI bubble for several years now, and it has not come to fruition.”

On a long-term time horizon, earnings determine stock prices.

Until the fundamentals roll over, the bears have to come up with a more compelling argument.

Quantify Funds is building actively managed funds that seek to pay weekly dividends from the performance of bitcoin, gold, and US stocks. 

Governments print. We stack bitcoin & gold.

🚢 The US struck Iranian targets over the weekend. Oil prices remain in flux, as the Strait of Hormuz moves roughly 20% of the world’s oil and gas trade, and tanker traffic remains disrupted after last week’s initial round of strikes. (Bloomberg)

📊 Nearly half of US companoes that paid tariffs still plan additional price increases. About 44% of manufacturers and 47% of service firms expect to keep raising prices, according to a New York Fed survey. (Yahoo Finance)

🤖 SK Hynix closed 13% above its IPO price. Friday marked the biggest US debut ever by a non-US company. The memory giant raised $26.5 billion and now trades under the permanent SKHY ticker. (CNBC)

🗓 July 13, 1990: The Dow Jones Industrial Average traded above 3,000 for the first time in its history, briefly hitting the milestone intraday before slipping back below by the close. It took until April 1991 for the index to notch its first close above the level.

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