Earnings Recovery Spreads as Market Catches Up

The August market performance was characterized by stability on the surface but significant underlying shifts. The S&P 500 rose approximately 2.5% in August, primarily driven by the first two trading days at the beginning of the month.

However, earnings growth caught up with valuations, and Goldman Sachs noted that the breadth and depth of the Q2 earnings season exceeded market expectations. The median S&P 500 company saw EPS growth of 14%, while the current forward P/E ratio remains at 20x.

The Treasury announced an increase in monthly repurchase agreements to suppress long-end yields, but Goldman strategist Will Marshall believes these operations provide only marginal technical relief and are unlikely to drive yields down substantially. The Strait of Hormuz has been closed for six months, affecting energy trade corridors.