Earnings season is winding down, and the results have given investors plenty of reasons for optimism.
Corporate earnings have been strong across a broad range of industries, with companies consistently exceeding expectations. Nvidia’s latest results provided another reminder that the artificial intelligence investment cycle continues to have significant momentum.
At the same time, a familiar concern is returning to the conversation: inflation.
With the Federal Reserve signaling that interest rates could remain elevated, we think September may require a little more patience from investors.
The Market Is Still Near Record Highs
Despite the concerns we’re hearing from investors, the S&P 500 remains remarkably close to its all-time high.
The 7,600 level we watched earlier this summer has also become an important area of support. In technical terms, what was previously resistance can become support once the market successfully moves through it.
That doesn’t guarantee stocks move higher from here.
But it does give us perspective.
There is always something for investors to worry about, and bull markets have historically continued climbing despite plenty of uncertainty along the way.
The Federal Reserve Could Create Some Headwinds
Interest rates remain one of the biggest variables.
Comments surrounding the Federal Reserve’s Jackson Hole meeting raised the possibility that rates could potentially move higher again if inflation becomes a problem.
Higher rates can create pressure throughout the economy. Housing is one obvious example. Elevated borrowing costs have kept the real estate market extremely constrained.
For stocks, higher rates can also make future earnings less valuable and increase financing costs for businesses.
That is why we continue to believe investors should respect the Federal Reserve and remain somewhat cautious heading into September.
Nvidia Reminds Us Why Earnings Matter
While interest rates may create a headwind, corporate America continues producing impressive results.
Nvidia delivered another strong earnings report, including growth expectations that exceeded what investors had anticipated. The continued demand for AI infrastructure helps support the argument that the AI investment cycle still has room to run.
A stock can rise in price substantially and potentially be cheaper than before the rise if it is supported by fundamentals and earnings are growing quickly enough.
Ultimately, earnings drive long-term stock prices.
AI Is Becoming a Productivity Story
We’re also seeing artificial intelligence move beyond the companies that build chips and software.
Businesses throughout the economy are beginning to use AI to reduce costs and improve productivity.
Airbnb provided a good example during its earnings discussion, describing how a significant portion of customer service issues are now being resolved by AI before requiring assistance from a human employee.
Multiply those kinds of efficiencies across thousands of businesses and the economic impact becomes significant.
This is one reason we believe AI could continue supporting corporate earnings even outside the technology sector.
Cybersecurity Remains an Area to Watch
Another technology sector we continue to like is cybersecurity.
As businesses become increasingly dependent on digital infrastructure and AI, protecting those systems becomes even more important. Cybersecurity is not an optional expense for most companies. It is part of doing business.
Companies such as Palo Alto Networks, CrowdStrike, Zscaler, and others continue to benefit from that demand, and we expect strong earnings across the sector will provide opportunities for further growth despite the gains we’ve already seen.
Knowing When to Change Your Mind
Strong investing isn’t just about identifying winners.
It’s also about recognizing when an investment thesis isn’t working.
Last week, we discussed Williams-Sonoma as a company worth watching heading into earnings. The results came in weaker than expected, with higher transportation costs affecting the company’s outlook. That changed the equation.
This is why we believe every concentrated investment should have both an entrance strategy and an exit strategy.
Taking a manageable loss can be frustrating, but allowing a small loss to become a catastrophic one can be far more damaging. A 10 percent decline requires roughly an 11 percent gain to recover. A 50 percent decline requires a 100 percent gain.
Risk management matters.
The Bigger Picture
September may bring volatility.
Interest rates remain high, inflation deserves attention, and earnings season is coming to an end, leaving fewer obvious catalysts to push stocks higher in the near term.
But we don’t see the kinds of fundamental problems that accompanied major market crises in the past. Corporate earnings remain strong, businesses continue investing and improving productivity, and the market remains near record highs.
That is why our strategy remains focused on the investor rather than trying to perfectly time the market.
For investors with long time horizons, staying invested remains important. For those approaching retirement or needing money sooner, reducing equity exposure and increasing bonds and other defensive investments can help cushion the portfolio.
Your investment timeline should be determined by your life and financial goals, not by trying to predict what the market will do next month.
At WealthGuard Advisors, we focus on disciplined portfolio management, risk control, and long-term positioning tailored to your specific goals. If you want a second opinion or a more structured approach to navigating markets like this, we are here to help.
This content is based on a recorded discussion by WealthGuard Advisors and has been edited and formatted with the assistance of artificial intelligence. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any securities.
