Earnings Season in Full Swing: U.S. Corporate Profits Show Remarkable Resilience
As of July 31, 2026, the second-quarter earnings season for U.S. stocks has peaked, with more than 60% of S&P 500 constituents reporting results. Among them, 74% beat revenue estimates and 71% beat earnings per share (EPS) expectations, significantly surpassing the five-year averages of 67% and 62%. This impressive report card has not only eased market concerns about an economic slowdown but also become the core fuel pushing U.S. stocks to record highs.
Particularly noteworthy is the performance of tech giants. Apple's latest quarter saw service revenue grow 19% year over year, offsetting weak hardware sales. Microsoft's cloud business Azure returned to growth above 30%, with AI-related contributions surpassing 10% for the first time. Even more exciting for the market, Nvidia has not yet reported earnings, but its supply chain partners such as TSMC and Hon Hai have indicated in their earnings calls that AI accelerator order visibility now extends to the first quarter of 2027, with component supply gaps still around 20%.
Such fundamental strength has deflated the so-called 'bubble theory.' Ahead of earnings season, some strategists warned that AI capex could follow the dot-com bubble's path; however, actual figures show corporate AI investment has not slowed but accelerated. Data shows S&P 500 companies' total second-quarter capex rose 12.3% year over year, with technology and communication services sectors up 21%, the highest since the pandemic period.
Fed Turns Dovish as a Tailwind: Peak Rate Expectations Ignite Risk Appetite
At its July meeting, the Federal Open Market Committee (FOMC) held rates steady as expected, but the post-meeting statement removed the phrase 'needs more confidence that inflation is moving sustainably toward the 2% target,' interpreted as a clear signal that rate cuts could begin as soon as September. The CME FedWatch tool shows the probability of a 25-basis-point cut in September soared to 86%, up 32 percentage points from a month earlier.
The shift in rate expectations provides powerful support for U.S. stock valuations. With the S&P 500's forward P/E at about 22.3 times, if the 10-year Treasury yield falls from the current 3.85% to 3.5%, the equity risk premium would expand to more than 2 percentage points, making stocks significantly more attractive relative to bonds.
Historical experience confirms this logic: since 1995, the S&P 500 has averaged a 14.6% gain within 12 months after the Fed's final rate hike, with an 87% probability of positive returns. The market is now in the golden window between a rate-hike pause and the first cut. A large pool of money previously parked in money market funds (still around $6.1 trillion) is poised to rotate into equities.
Corporate Buybacks in Full Force: A Stabilizing Force in a Bull Market
Beyond fundamentals and the rate environment, companies' own capital allocation actions also provide strong support for U.S. stocks. As of end-July, announced buyback plans by S&P 500 companies in 2026 totaled $943 billion, up 17% year over year. At the current pace, the full year will set a record above $1.1 trillion.
Especially notable is the 'massive buyback' by tech giants. Apple's board recently announced an additional $110 billion in buyback authorization, bringing its total 2026 authorization to $160 billion. Google parent Alphabet also added $70 billion. These buybacks not only directly boost EPS but also send a positive signal that management sees the stock as undervalued.
From a capital flow perspective, buyback power is clearly dominating the tape. Goldman Sachs analysts estimate that corporate buyback execution over the past month rose 32% year over year, concentrated in buying dips during sessions, effectively absorbing profit-taking pressure. This 'downside support' characteristic means U.S. stocks see relatively limited declines even amid geopolitical or economic data shocks.
Global Capital Chases Dollar Assets: The Dual Magnetic Effect of Hedging and Growth
Across global markets, U.S. assets are showing a unique 'double magnet' quality—offering both growth from advanced technology and the safe-haven nature of the dollar system. Since the start of 2026, U.S. stock ETFs have seen cumulative net inflows of $487 billion, with overseas capital accounting for about 38%, well above the 25% average for the same period in 2024 and 2025.
In contrast, European stocks are constrained by energy transition pains and manufacturing weakness, with the STOXX 600 up just 4.2% year to date. Emerging markets, hurt by a strong dollar and tariff uncertainty, saw the MSCI Emerging Markets Index fall 2.8%. This stark contrast has prompted global fund managers to gradually raise U.S. equity allocations. BofA's Global Fund Manager Survey shows global funds' U.S. equity allocation is 14 percentage points above the benchmark index, the highest since 2007.
More importantly, this capital inflow is not blindly chasing themes but precisely targeting leading companies with real profits. The 'AI winner alliance' led by Nvidia, Microsoft, and Apple now accounts for nearly 18% of the S&P 500's total market cap, while these companies boast average gross margins above 45% and a free cash flow yield of 3.2%, indicating their valuations remain reasonable.
How to Stay Ahead of the Wave? H2 Positioning Strategy and Risk Management
With U.S. stocks repeatedly hitting highs, many investors worry about the risk of chasing. But historical data tells us that the late stage of a bull market often lasts longer than expected. For strategy, we recommend a 'core + satellite' allocation: the core holds tech leaders with strong cash flows, while satellite positions target small- and mid-cap growth stocks that benefit from the rate-cut cycle.
It's worth noting the market is not without risks. If the Fed cuts rates too aggressively, inflation could rekindle. If AI capex suffers from excessive double-ordering, supply chains may face inventory corrections. Therefore, investors should place high importance on balance sheet quality, avoid speculative stocks with high debt and low cash flow, and use options strategies for downside protection.
In summary, the investment logic for U.S. stocks in 2026 remains unchanged—three tailwinds converge: sustained corporate earnings growth, easing monetary policy, and buyback/flow support. They all point to one conclusion: U.S. stocks remain the world's most attractive risk-asset market. For long-term investors, rather than guessing the market top, it is better to build or add to quality positions in batches during pullbacks, letting time and compounding build wealth.
