It has been a dramatic week of significant reversals on Wall Street. The Nasdaq hit an all-time closing high on Tuesday 23 September of 26,936, marking its first new record since early August. Even as bond market turbulence sent stocks lower the very next day, with the S&P 500 sliding 0.8% to 7,706 as 30-year Treasury yields briefly hit 5.64%, their highest level since 2004. By Thursday, hopes of a Hormuz deal were enough to pull both indices back from the brink, with the Nasdaq ending roughly flat on the week. The S&P 500 closed September down 0.5% in its weakest monthly performance since May, while the Dow shrank 4.3% over the same period. However, comparing those monthly figures against quarterly results reveals a different picture: the S&P 500 advanced 2% in Q3, the Nasdaq gained 2.5%, and the year-to-date scoreboard shows the S&P 500 and Nasdaq 100 up 12.5% and 15.9% respectively. For a market that has experienced its first rate hike since July 2023, Middle East geopolitical tensions, and a bond sell-off that has taken the 10-year Treasury yield from below 4% in March to 5.23% today, this resilience is notable.
Two structural forces continue to support this market. The first is corporate earnings performance, which continues to exceed analyst projections. The second is a valuation and concentration picture that will increasingly define the market's risk profile as the Q3 earnings season begins in earnest.
The earnings engine
The extent and depth of corporate profits across US equities in 2026 has been, by almost any historical yardstick, quite extraordinary, and they aren’t showing any signs of reversing yet. FactSet's latest earnings insight puts the estimated year-over-year earnings growth rate for the S&P 500 in Q3 at 29.1%, up from a 26.7% estimate at the start of the quarter and already above the five-year average, with the full calendar year 2026 now expected to deliver 32% earnings per share growth. That would make 2026 the eighth consecutive quarter of double-digit earnings growth for the index, which is basically unprecedented. Critically, the breadth of this cycle has been improving: 14 of the 16 Zacks sectors are on track for earnings growth in Q3, which contrasts starkly with earlier quarters, when the Magnificent 7 carried a disproportionate share of the load. Goldman Sachs projects full-year EPS of $340 for a 24% increase year over year, and that’s with AI infrastructure investment accounting for roughly half of earnings growth. But the most exciting individual numbers remain in the semiconductor space: Nvidia's Q3 earnings are expected to increase 90% YoY on 91% higher revenues, while Micron's year-over-year earnings growth is forecast at a barely believable +938%. Meanwhile, Apple hit an all-time high of $345 this week, and together Apple and Nvidia now represent over 15% of the entire S&P 500, practically dwarfing the 9.1% peak seen for Microsoft and General Electric at the height of the dot-com bubble. In other words, this bull market is entirely earnings-driven and genuinely noteworthy, but it is also increasingly narrow, and the distance between what the headline index says and what the average stock is doing beneath it has almost never been wider.
Bond market madness
As we’ve seen, earnings are the least of equities’ worries: Their more immediate threat is the bond market, which has spent the past six weeks delivering what one strategist this week called "the tightening the Federal Reserve has declined to deliver". The 30-year Treasury yield at 5.64% and the 10-year at 5.23% are not simply a mechanical consequence of September's 25-basis point rate hike, rather they reflect a broader repricing of long-term real rates that has significant implications for equity valuations at current levels. The S&P 500's forward price-to-earnings multiple of 19.2x sits in the 88th percentile of the past 40 years, and as Capital.com's senior market analyst Daniela Hathorn observed this week, the rise in yields is "only part of the story". Indeed, what is driving longer notes’ growth is the bond market's strengthening conviction that the US economy is capable of sustaining higher real rates than previously assumed, with S&P Global reporting the strongest business activity growth in more than five years alongside increasing capacity constraints and faster input-cost growth. Goldman Sachs now expects a further Fed hike in December before the end of the current cycle, while New York Fed President John Williams said the Fed can afford to be patient before announcing another hike. The August PCE data came in below expectations at 0.2% for core, sending cut probabilities on the CME’s FedWatch tool down to 35% and giving equities a chance to breathe. However, with the 10-year having climbed over 125 basis points since March, the pressure on the most rate-sensitive parts of the market is increasingly visible. Goldman's year-end S&P 500 target of 8,000 rests on the multiple holding steady at roughly 21x as modest yield declines offset slowing growth. That is achievable if Warsh makes December's meeting the last one with a hike. But if the bond market continues to run ahead of the Fed in pricing in additional tightening, multiple compressions in the most expensive corners of this market would be the path of least resistance.
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