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Market Perspectives

Earning Rule

August 2026

Filename: Market Perspectives August 2026.pdf
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TRANSCRIPT

Last month commenced with ceremonial fireworks and the major stock market indices provided some additional fireworks throughout the month. The S&P 500 had to rally during the final week to finish the month with a flat return. So far, August is living up to its name with an impressive month to date (MTD) start for the S&P 500, Russell 2000 small cap and S&P 400 mid cap, all up over 3% MTD as of filming.

The war continues, the Hormuz Strait is not open, inflation remains pesky and interest rates show little sign of heading lower anytime soon. So what propelled the stock market to record highs in the first week of August? It was largely earnings.

Q2-2026 Earnings Scorecard

EPS Growth Surprise

Source: Bloomberg, RBC Rochdale as of August 6, 2026. Sectors and industries are S&P 1500 sub-indices.
Information is subject to change and is not a guarantee of future results.

Chart 1, 0:58— Second-quarter earnings are broadly excellent: More than 80% of the S&P 500 has reported and 85% of the index’s companies have beaten estimates. Index earnings are tracking roughly 32% growth, with adjusted earnings per share (EPS) near $87 vs. the expected approximate $81 when the season began.

The strength is broad, not just tech: Healthcare’s beat rate leads at 98% and more than 80% of S&P 500 reporting companies grew earnings year over year.

Growth Mega-Caps Jump

Source: Bloomberg, RBC Rochdale as of August 6, 2026. Sectors and industries are S&P 1500 sub-indices.
Information is subject to change and is not a guarantee of future results.

Chart 2, 1:34— There were some mixed results and not all headline stocks surged. Most notably, Apple dropped despite posting strong revenue numbers because its forward guidance wasn’t quite what investors were hoping for. In addition, Meta and Netflix didn’t impress investors, while Amazon, Microsoft and Oracle did.

Full valuations mean even strong results can be met with selling pressure, so expect single-name volatility around AI reports to stay elevated. We remain overweight U.S. large-cap stocks as AI profits continue to dominate this cycle.

The rally to record highs is running on narrow legs: The Nasdaq gained 5.2% in the first week of the month while small caps lagged.

Concentration underscores the need for diversification. We are working to broaden our overall allocations. We are revisiting our non-U.S. allocation recommendations, specifically in emerging markets (EM). Our call not to chase EM earlier this year was fundamentally correct and allowed us to sidestep the significant July drawdown. Global EM allocations sit near 20-year lows and July’s record retail capitulation is moving us to consider whether it’s time to reallocate. Further, EPS growth estimates are relatively attractive vs. the U.S. Stay tuned: I’ll likely have more on this next month.

Important Information

The views expressed represent the opinions of RBC Rochdale, LLC which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness.

While RBC Rochdale believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management's view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market.

Equity investing strategies & products. There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

RBC Rochdale, LLC is an SEC-registered investment adviser and wholly-owned subsidiary of City National Bank. Registration as an investment adviser does not imply any level of skill or expertise. City National Bank is a subsidiary of Royal Bank of Canada.

Index Definitions

The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity and industry group representation to represent U.S. equity performance.

The Magnificent Seven (Mag 7) refers to a group of seven high-performing, dominant U.S. technology stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.

EPS (Earnings Per Share) is a key financial metric representing a company’s profit divided by its outstanding shares, indicating profitability per share.

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