Good problems
Investors are facing a good set of problems right now. Growth is stronger than expected, earnings have been robust, and employment is holding up. In an ordinary year, each of those would be an unambiguous positive. This year, each one is also making life harder for policymakers as strength like this pushes up yields, keeps inflation stickier than anyone would like.
With 97% of large cap US companies having reported, ex-one-off earnings were up 33.8%. This is the best quarter since 2021, a seventh straight quarter of double-digit growth, and well above the 23.1% consensus that stood as of the end of June. An 86% beat rate, the highest since the same period in 2021, and revenue growth of 15.5%, the fastest since the fourth quarter of that year.
The strength was broad-based too. The “Magnificent Seven” grew earnings by 43.2%, but the other 493 companies managed 31.8% on their own, their best showing since late 2021. Energy, Communication Services, Consumer Discretionary and Information Technology all posted double-digit gains.
The 10-year Treasury yield is still close to its highest level in several years. It eased only slightly ahead of Friday's non-farm payrolls report, which then came in stronger than expected, overturning the softer signal from an ADP print earlier in the week and strengthening the case for a rate rise rather than weakening it. Fed funds futures already had a 62% (04.09.2026) probability priced in for a 25-basis-point increase this month, up from 37% a week earlier, and the payrolls beat gives markets little reason to unwind that.
The US economy is driving an outsized share of global growth, and capital expenditure has become the main engine behind it, fed by AI infrastructure spending, some onshoring, and supportive tax policy. That capex boom is currently offsetting a real slowdown in consumer spending. Businesses are still investing at pace while consumers pull back, and this split is what makes the Fed's job harder going into the September meeting.
The effects are not confined to the US. The 10-year gilt now yields 5.26%, an eighteen-year high, up roughly 30 basis points over the past month and 80 basis points since the start of the year. The Bank of England has its own inflation problem, and a November rate rise is now priced at close to 60%. The scale of US capex-related issuance is crowding out government borrowing everywhere and pulling yields higher across developed markets. UK gilts run around eight years of duration on average, so domestic investors feel every basis point of this move, and because the long end of the gilt curve is moving mostly in sympathy with Treasuries rather than anything happening at home, that risk is not going away soon.
This is exactly the environment where a diversified, multi-asset approach earns its keep. Stronger nominal growth and stickier inflation reward different assets at different times, and usually for different reasons: equities for earnings power, shorter-duration credit for income without too much rate risk, and real or inflation-linked assets in case price pressure turns out to be more stubborn than the headline numbers suggest. No single asset class captures all these good problems at once, and none is immune to the risks that come with them. In our experience, spreading exposure across and within asset classes remains the most reliable way to participate in growth like this without taking on more risk than the portfolio needs.
Source: FactSet, Earnings Insights, 04.09.2026
