With summer winding down and students back in the classroom, I wanted to take a moment to share some thoughts on where financial markets currently stand and what is shaping portfolio performance.
Over recent months, equity markets have climbed to new record highs while, at the same time, interest rates remain near their highest levels in roughly two decades. This combination is a positive development for investors and their financial plans. It also naturally prompts questions, since elevated interest rates are traditionally associated with slowing economic activity and headwinds for equities. So what is actually fueling both of these trends simultaneously?
What is driving the stock market higher?
Major equity indices have delivered strong double-digit gains so far this year, with broad participation spanning numerous sectors. Energy stocks have benefited from higher oil prices, technology companies continue to draw investor enthusiasm around artificial intelligence, and industrial firms have held up well as the domestic economy remains resilient. This breadth of performance is an encouraging sign, as it reflects strength across many parts of the market rather than a narrow rally.
Perhaps the most significant factor behind this year's equity rally is corporate earnings. Over the long run, stock prices tend to follow the trajectory of corporate profits. Current forecasts suggest that earnings for the S&P 500 are expected to grow at over 30% this year, which would be well above the historical average of around 8%.1 When companies are generating robust profits, stock prices tend to reflect that underlying strength over time.
The trajectory of interest rates is also an important consideration, since rates can rise for different reasons. When rates climb due to inflation concerns, both stocks and bonds can come under pressure, as was the case in the period following the pandemic.
However, rates can also rise because the economy is expanding, which pushes up what are known as "real yields," meaning bond yields after accounting for inflation. Rising real yields tend to signal confidence in economic growth rather than fears about inflation. That is largely the dynamic at play this year, which helps explain why equities have continued to advance even as rates remain elevated.
What do higher interest rates mean for bonds?
Bond prices and bond yields move in opposite directions, so rising rates have kept fixed income returns relatively subdued this year. For those watching equity holdings reach new highs while bond holdings remain largely flat, this may raise questions. Within a well-constructed portfolio, however, this is by design. A thoughtfully built portfolio will naturally include asset classes that move in different directions at different points in time.
There is also an important silver lining worth noting. Higher yields mean that bonds are now offering more income than they have in many years. Investment-grade corporate bonds and Treasury securities are currently paying income levels that were simply not available during the extended period following the 2008 financial crisis, when interest rates were held near zero for many years. For investors who depend on their portfolios for income, or who want to balance the risk of equities with more stable assets, this represents a meaningful shift.
Specifically, the 10-year Treasury yield recently reached approximately 4.9%, a level not seen since late 2023, and the 30-year yield has moved above 5.3%, a level last seen around 2006.2 While higher rates do make borrowing more expensive across the broader economy, they also create meaningful opportunities for long-term investors.
Investing for the long term
Stocks and bonds serve distinct roles within a portfolio, and both are fulfilling those roles in the current environment. Equities are benefiting from strong corporate earnings and steady economic expansion. Bonds are generating more income than they have in years, providing a counterbalance to the risk that equities carry. Together, they support the kind of portfolio balance that allows investors to remain focused on long-term goals rather than reacting to every shift in market conditions.
It is natural for equity markets to hover near all-time highs during bull market cycles. This is not to suggest that volatility cannot occur. Periods of uncertainty are a normal part of investing and can arise from many sources, including changes in Federal Reserve policy, geopolitical developments, or shifts in economic data. What history consistently demonstrates is that long-term investors who stay the course and maintain balance across asset classes tend to fare better than those who move in and out of markets in an attempt to anticipate each turn.
As always, please do not hesitate to reach out if you have questions about what the current environment means for your specific situation. I am always happy to walk through how your financial plan is positioned to navigate these conditions.
All the best,
Lance
References
1. Clearnomics research using Standard & Poor's and LSEG data, as of September 9, 2026
2. Clearnomics research and Bloomberg data, as of September 9, 2026
Index Descriptions
S&P 500
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.