Broadening Participation Supports the Market as AI Investment Continues

1. Economic Growth and AI Demand Remain Firm The U.S. economy continues to chug along, with the Atlanta Fed GDPNow tracker currently running at 4.3%,¹ a meaningful acceleration from the 1.5% growth rate recorded last quarter. The improvement reflects continued strength across the economy, with the ongoing AI investment cycle serving as an increasingly important contributor to growth. Recent results from Cisco, Applied Materials, CoreWeave, and Super Micro Computer provided additional evidence that demand across the AI ecosystem remains strong. Hyperscalers continue to invest heavily in data centers, networking, computing power, and infrastructure, while companies throughout the broader AI food chain continue to report healthy demand.

The strength of the underlying demand remains encouraging, even as individual stocks have reacted differently to earnings results. Many of the companies tied to the AI theme have generated strong gains, making some consolidation or periods of volatility understandable. We continue to believe the long-term investment cycle remains intact, but the market may increasingly reward selectivity as expectations rise and investors look for companies that can continue to exceed elevated expectations.

The broader economy also continues to show signs of strength. Federal Reserve H.8 data indicates that bank loan growth is running in the 8% to 10% range, consistent with the trends reported by the major banks last quarter. ISM Services has remained above the 50 level for 24 consecutive months,² further supporting the view that economic activity remains in expansion territory. Taken together, these indicators suggest that the economy continues to grow at a healthy pace and that businesses and consumers remain willing to spend.

2. Earnings Strength Is Broadening Across the Market The strength of the economy continues to flow through to corporate earnings. S&P 500 earnings growth is running at approximately 50%, while revenues are up roughly 15% and gross margins have expanded by approximately 250 basis points.³ Importantly, the strength is becoming increasingly broad-based rather than being concentrated exclusively in technology.

Ten of the eleven S&P 500 sectors are currently experiencing earnings growth, with most posting double-digit increases. Market performance is also reflecting this broader participation. The equal-weighted S&P 500 is up 17.38%, compared with a 14.52% gain for the market-cap-weighted index, while small caps have advanced roughly 23%.⁴ While technology and AI remain important drivers of the market, the widening participation across sectors is an encouraging sign that the rally is developing a broader foundation.

We continue to favor a barbell approach, maintaining exposure to technology and the AI food chain while looking for opportunities in areas that have lagged. Consumer discretionary stands out as one of the more attractive sectors from a valuation perspective. Many companies within the group have not participated to the same degree as technology and AI-related stocks. A further decline in oil prices, particularly if geopolitical tensions ease, could provide an additional tailwind for consumers and discretionary companies.

3. Consumer Discretionary and Inflation in Focus Consumer discretionary will be an important area to watch as the next round of retail earnings gets underway. Target has emerged as a strong performer within the group and is trading near all-time highs, which raises the bar for its upcoming results.

The inflation backdrop is also showing some encouraging signs. While inflation remains above the Federal Reserve’s target, recent CPI and PPI data suggest that price pressures have not accelerated meaningfully over the past two months. More importantly, unit labor costs declined more than expected while productivity improved, a combination that could help ease inflationary pressures over time. Lower oil prices would provide another important tailwind, particularly for consumers.

Looking ahead, investors will receive another busy slate of economic and corporate data, including the FOMC minutes, industrial production, PMI readings, and several major retail earnings reports. Walmart will be particularly important given its broad consumer exposure and management team’s ability to provide insight into consumer behavior and the broader macroeconomic environment. Overall, the combination of healthy economic growth, broadening earnings, continued AI investment, and improving productivity continues to provide a constructive backdrop for equities.

4. Fixed Income U.S. Treasury yields were mixed across the curve last week as an in-line July CPI report led the market to reprice expectations for near-term rate hikes. By Friday’s close, the 2-year yield was lower by 3 basis points while the 10-year and 30-year yields were higher by 5 & 6 basis points, respectively.⁵

Credit markets deteriorated last week with widening evident across both the investment-grade and high-yield sectors. Investment-grade spreads were wider by 2 basis points to +118, while high-yield spreads expanded 7 basis points to +314. Separately, credit quality improved last week as the main rating agencies issued 33 upgrades and 26 downgrades. Municipal yields were largely unchanged last week, decreasing 1-2 basis points across the curve.⁶

Stephanie Link’s TV Schedule:

Return for Selected Indices⁷

Sources:

1. Federal Reserve Bank of Atlanta: As of August 17, 2026 ↩︎
2. Bloomberg: As of August 17, 2026 ↩︎
3. Bloomberg: As of August 17, 2026 ↩︎
4. Bloomberg: As of August 17, 2026 ↩︎
5. Bloomberg: As of August 17, 2026 ↩︎
6. Bloomberg: As of August 17, 2026 ↩︎
7. Bloomberg: As of August 17, 2026 ↩︎

Disclosure
Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.