What the Stock Market Learned About Earnings and Consumers This Summer

Traders work on the floor of the American Stock Exchange at the New York Stock Exchange. (Michael Nagle/Bloomberg)

With summer drawing to a close there has been little downtime for the market in recent months. Although Nvidia’s surging earnings didn’t satisfy investors this week, stocks have been scoring record highs even as worries about trade, the Federal Reserve, and consumer health persist.

So while many investors may be in vacation mode, and many uncertainties persist, there were a lot of valuable data points this summer, argues RBC Capital Markets Head of U.S. Equity Strategy Lori Calvasina.

In her roundup of the season, she notes that recent corporate earnings reports have painted a fairly reassuring picture of consumer spending, even amid concerns about tariff-related price increases. Dollar General soared after earnings, with management noting that its core customer increased its spending despite worsening sentiment. On the other end of the income scale, Williams-Sonoma said that it saw consistent demand, rather than any big jump in purchases that would indicate stocking up ahead of new levies.

Tech companies too had more good news than bad to deliver in their post-earnings commentary. She highlights that outside the public sector, and despite some macro-related slowdowns, NetApp had a robust quarter, while HP cited a very strong back-to-school season in its post-earnings remarks.

Likewise, the second-quarter earnings season itself was a good one: Eighty-one percent of large-cap companies delivered better-than-expected earnings per share and 80% beat on sales, an improvement from 79% and 62% in the first quarter, respectively. Small-caps saw sequential improvement too, with 65% recording earnings per share and revenue higher than expectations.

That said, it may be hard for the market to break out of the bigger-is-better mind-set.

Calvasina writes that although the rally had been broadening, that petered out after Nvidia’s earnings disappointment. Moreover, fundamentals point to a narrow cohort of winners: In terms of bottom-up forecasts, implied earnings-per-share growth for next year has risen for only two sectors (tech and materials) since the end of June. In fact, “the 2026 growth rate implied by consensus forecasts for the broader S&P 500 is down from midyear and has been flat in August, illustrating to us that while the second quarter has been much better than expected, that excitement hasn’t translated into much incremental optimism about future earnings growth.”

Likewise, she notes that overall operating margin expectations for large-caps have held up better, potentially “reflective of the idea that small-caps are having a tougher time managing through tariffs, and adds to our conviction that a continuation of a Fed cut-optimism-driven-outperformance trade in small-caps may still end up being fairly short-lived.”

Perhaps it isn’t surprising then that the “vibes remain mixed as summer winds down,” she concludes. The weekly AAII investor sentiment survey of retail investors showed a bullish improvement in its most recent reading, but the four-week average remains down. That leads Calvasina to conclude that investors are taking some comfort in an anticipated interest rate cut—but only to an extent.

And she notes that inflation expectations may be helping to push equities higher, as U.S. households have traditionally allocated a greater portion of their assets to stocks in times of higher inflation. Here too, however, the picture isn’t entirely clear, as that pattern has broken down to an extent in the postpandemic years.

That said, overall RBC is optimistic about the rest of the year and beyond: The firm’s hasn’t issued a 2026 S&P 500 target yet but its modeling points to a figure “in the 7,000-7,200 range using consensus EPS [of more than $300] or better, or the 6,300-6,400 range using a far less constructive EPS of $273,” she notes. “We interpret this range as pointing to upside potential in the year ahead, despite near- to medium-term concerns.”

So all thought fall is historically a tumultuous time for the market, sunny optimism need not end with summer.

Write to Teresa Rivas at teresa.rivas@barrons.com