Market Matters – The Unloved Bull Market Rolls On

• US equities kept rising despite a weaker jobs market. The S&P 500 gained around 3.6% and reached another record high, even as July payrolls fell by 23,000 and average job creation over the past three months slowed to roughly 20,000 a month. This makes the Fed’s task harder if employment weakens while inflation stays elevated.
• Strong earnings remain the main support for the bull market. Around 86% of reporting S&P 500 companies have beaten expectations and headline earnings growth is above 50%. Even excluding the exceptional gains recorded by Alphabet and Amazon, underlying earnings growth is still around 32%.
• AI spending is spreading beyond the major technology companies. Investment is increasingly reaching construction, power, cooling, networking and electrical equipment. Caterpillar illustrated this trend with revenues up 24% and its order backlog rising above $72 billion, although much of this activity still ultimately depends on continued AI capital spending.
• Geopolitical and trade risks remain important, but have not yet derailed growth. Progress towards a technical arrangement around the Strait of Hormuz has reduced some immediate energy concerns, although it is far from a peace settlement. Meanwhile, Chinese exports rose almost 24% year-on-year, supported by advanced manufacturing and technology demand, while China’s domestic economy remains much weaker.
• UK fiscal policy is becoming a bigger market issue. The government may have more accounting flexibility to borrow for certain investments, but this does not remove the underlying economic constraint. Ultimately, gilt investors will determine how much additional borrowing can be absorbed without pushing yields materially higher.