Earning All-Time Highs

The Bureau of Labor Statistics (BLS) reported a decline in nonfarm payrolls in the United States, with July payrolls falling by 23,000 versus expectations of an increase of 80,000. June’s payrolls were also revised lower by 37,000, and the primary culprits for lower job growth included losses within government jobs (-53,000), leisure and hospitality (-40,000), and financial services roles (-14,000), offset by the venerable education and health services (+25,000) and recently steady professional and business services category (+18,000).¹ The unemployment rate fell to 4.1% from 4.2% due to a small tick lower in labor force participation, or those actively seeking employment, and hourly earnings fell for this month and were revised lower for last.²

These are generally small changes, but the bond market noticed. The very front end of the yield curve, which tracks Federal Reserve expectations for its upcoming September meeting, has gone from a 100% probability of a 0.25% interest rate hike two weeks ago to less than a 45% chance as of Friday afternoon. Longer maturity bonds, including 30-year maturities that last Friday reached their highest yields in over 18 years, rose in price and fell in yield following the BLS release. We continue to emphasize that for all of the discussion around artificial intelligence buildout and expenditures, the bond market remains in charge of asset prices. We have had two decades of low yields that have helped foster everything from favorable consumer and business borrowing costs to contained commercial real estate prices (despite fundamental challenges) to high equity prices, thanks to current earnings being discounted back by low interest rates. As we approach midterm elections and policy platforms sharpen, we will remain focused on interest rate levels and their impact on economic activity.

For U.S. large capitalization companies as represented by the S&P 500, as of Friday morning, almost 90% of the index has reported earnings. The results are nothing short of outstanding on a headline basis, with sales growth up 15% and earnings growth up 52%. As we have stated throughout this year, our glass-half-full and positive disposition towards growth assets is a function of strong earnings momentum, and this earnings season continues to support that working hypothesis.

To be sure, some of these figures are skewed by extraordinary comparisons to prior periods with sectors including energy (+147%), consumer discretionary (+120%, with Amazon the largest contributor), communications (+114%, led by Alphabet) and technology (+69%), thanks to semiconductors and technology hardware companies.³ Energy company earnings buoyed by higher hydrocarbon prices coupled with AI ecosystem buildouts continue to drive elevated sales and earnings trajectories.

Only one sector has posted negative earnings growth with five companies left to report: healthcare. Ironically, out of the 15 companies within the biotech and pharma subindex, only two companies have posted earnings declines (Pfizer and Biogen).⁴ Consumer staples (+7.2% earnings growth) and real estate (+8.8%) are the next two weakest performers, but still solid and in the case of consumer staples, a notable increase. U.S. midcap earnings are up 23% and small cap up 11%, and both have considerably lower aggregate exposures to information technology and communication services relative to the S&P 500.

Through a global lens, consumer activity is generally positive but uneven by income cohort and geography. Higher-income consumers remain extremely strong, corroborated by several data points. Luxury retailer LVMH highlights, “The United States saw growth accelerate and had a good first half of the year. Asia (excluding Japan) saw strong growth, confirming the improvement in trends observed starting in the second half of 2025. Japan posted growth for the half-year period and Europe showed good resilience.”⁸ American Express’ CEO noted strength, particularly in the U.S., “Six months into the year, we’re seeing stronger momentum than we expected. The investments we made in our value propositions have driven accelerated spend and revenue growth; our platinum portfolio is now the fastest growing in our U.S. consumer business; our best-in-class credit performance further strengthened; and we continued to attract a large number of new customers.”⁹

We found ourselves caught up in the AI buildout fray with Amazon’s earnings, but a few key takeaways emerged from its report: Retail sales growth demonstrated strength, including grocery, daily essential consumption, and Prime delivery activity.¹⁰ With a more global lens, Unilever and Nestle both noted consumer demand holding up in Europe, with strength in the United States and acceleration in emerging markets. China remains an open question for global retailers, but on balance, stability appears to be a common theme. Employment and wage trends (again, one of Japan’s largest growth drivers has been domestic consumption fueled by wage gains) will remain focal points for us as we assess consumers still constrained by high fuel and shelter costs.

The financial community continues to adjust to the new Federal Reserve, which has a new leader in Chair Kevin Warsh, yet not all his structural changes have occurred. What has changed is Warsh moving away from forward guidance, or providing implicit context on the central bank’s future intentions regarding monetary policy. As we juxtaposed last week, Japan and England were very clear with their intent, but the Fed was quite taciturn both in its initial release but also in Warsh’s press conference.

This week, Treasury Secretary Scott Bessent joined the fray, commenting via social media platform X that “One of the highlights of the Warsh Fed has been watching stenographers posing as journalists…reduced to reporting Fed backroom gossip because they’re incapable of performing real economic or monetary policy analysis without being spoon-fed.”¹¹ This post drove responses from fellow journalists and asset managers, in some cases applauding the separation of the Fed from rumored journalistic ties and in other cases defending the role journalists can offer as communication vessels on complex topics.

One of the beauties of working in wealth management is that decision-making often boils down to buy, sell or hold. From all of the research, reading and analysis, we ultimately need to make decisions today that increase the odds of favorable client outcomes. We do not rely on journalists to perform economic analysis; we rely on them to dig out commentary and perspectives from primary sources and, from there, we conduct our own analysis. That analysis leads to strategic, and where applicable, tactical decisioning on behalf of clients.

While we respect the Fed’s decision to alter its communication program, we would highlight two considerations. First, we do not share Chair Warsh’s characterization of the Fed as a referee. We think the title “player/coach” is more appropriate, a throwback to double-duty minor league athletes in days past when sometimes they found themselves on the ice (in the Fed’s case buying bonds or other securities) and other times behind the bench. Second, market prices are not always perfect transmission mechanisms for Fed policy goals; asset prices can go up and down for a variety of reasons beyond interpretations of growth and inflation. As emphasized in our earlier section on the bond market being in charge, however the Fed intends to communicate, making it an active decision is key for financial market functioning.  

¹ U.S. Bureau of Labor Statistics. “Employment Situation Summary.” Economic News Release. August 7, 2026. https://www.bls.gov/news.release/empsit.nr0.htm. Accessed 7 August 2026.

² Ibid

³ Bloomberg Data, Northern Trust Wealth Management Research. S&P 500 Index data accessed on terminal, August 7, 2026.

⁴ Ibid

⁵ STOXX. “Benchmark Indices: STOXX Europe 600.” Index Factsheet. https://stoxx.com/index/sxxp/?factsheet=true. Accessed 7 August 2026.

⁶ Bloomberg Data, Northern Trust Wealth Management Research. DAX and CAC 40 Index data accessed on terminal, August 7, 2026.

⁷ Nikkei Indexes. “Nikkei Stock Average Monthly Fact Sheet.” Index Factsheet. https://indexes.nikkei.co.jp/en/nkave/factsheet?idx=nk225. Accessed 7 August 2026.

⁸ LVMH. “Accelerating growth in the second quarter, solid first-half results.” LVMH Publications. July 27, 2026. https://www.lvmh.com/en/publications/accelerating-growth-in-the-second-quarter---solid-first-half-results. Accessed 7 August 2026.

⁹ American Express. “American Express Q2 2026 Results.” American Express Investor Relations. July 24, 2026. https://s26.q4cdn.com/747928648/files/doc_earnings/2026/q2/earnings-result/Q2-2026-Earnings-Press-Release.pdf. Accessed 7 August 2026.

¹⁰ Amazon. “Amazon.com announces second quarter results.” Amazon News. July 16, 2026, revised July 31, 2026. https://www.aboutamazon.com/news/company-news/amazon-earnings-q2-2026-report. Accessed 7 August 2026.

¹¹ Bessent, Scott.[@SecScottBessent]. One of the highlights of the Warsh Fed has been watching stenographers posing as journalists…X. 5 August, 2026.