Stock Talk - Earnings Up, Rates Up: Who Wins the Tug-of-War? Stock Talk Update Aug 21, 2026

Episode Date: August 24, 2026

The S&P 500 has climbed sharply since the market lows of April 2025—but something unusual has happened at the same time: interest rates have also moved higher. So why haven't higher rates stopped the stock market? In this episode of Stock Talk, we break down the tug-of-war between corporate earnings and interest rates and explain why earnings growth has been powerful enough, so far, to overcome the pressure of higher Treasury yields. We also look at what could happen next. Using S&P 500 earnings estimates and different P/E assumptions, we'll walk through several illustrative scenarios for 2027—including what could potentially support an S&P 500 around 8,500, what could bring it closer to 7,200, and how a combination of falling earnings estimates and higher interest rates could create a much more difficult 6,500 scenario. In this video you'll learn: ✔ Why stocks and interest rates have both been rising ✔ Why earnings have been such an important driver of the market ✔ How higher Treasury yields can pressure stock valuations ✔ Why the S&P 500 can rise even while its P/E ratio falls ✔ How earnings and P/E multiples work together to determine market valuations ✔ What could support an S&P 500 around 8,500 ✔ What could push valuations toward 7,200 or lower ✔ The two numbers investors should be watching through 2026 and into 2027 The key isn't trying to predict exactly where the market will go. It's understanding what's driving it. If you're approaching retirement or you're already retired and you'd like someone to review your investments, income needs, risk, and how those pieces fit together with your retirement strategy, contact Oak Harvest Financial Group.   There’s no obligation. We’ll learn more about your goals, income needs, and concerns and help you understand whether there may be opportunities to improve your retirement plan. https://click2retire.com/lets-connect     And if you enjoy videos that make markets, investing, and retirement easier to understand, subscribe to the channel: https://www.youtube.com/@OakHarvestStockTalk?sub_confirmation=1   Sources discussed: FactSet Earnings Insight S&P 500 earnings estimates 10-Year U.S. Treasury Yield Important Disclosure: This content is for educational and informational purposes only and isn't intended as individualized investment advice. Market scenarios discussed are illustrative and aren't predictions or guarantees of future results. Investing involves risk, including the possible loss of principal.   00:00 Something Strange Is Happening in the Stock Market 01:10 Earnings vs. Interest Rates: The Tug-of-War 02:08 Point 1: Earnings Are Winning 03:21 Where Earnings Could Go Next 04:51 Why Hasn't the Market Gone Even Higher? 05:00 Point 2: Interest Rates Are Fighting Back 05:38 How Stocks Can Rise While the P/E Falls 06:24 Why the 10-Year Treasury Matters 07:31 What Happens Next? 08:23 The Bull Case: S&P 500 Around 8,500 09:11 The Higher-Rate Case: Around 7,200 10:12 The Bear Case: Around 6,500 11:07 The Two Numbers Investors Should Watch 12:05 The Number That Explains This Market 13:00 The Biggest Risk to Stocks 13:38 What This Means for Your Retirement

Something strange has been happening in the stock market. And if you're only watching the S&P 500, you could completely miss it. For most of the last year and a half, investors have watched two things move higher at the same time. Stock prices and interest rates. Normally, that's not a combination stock investors are hoping for. Here's what I mean. Go back to April 7th of last year 2025 near the bottom of the tariff panic. The S&P 500 closed around 5,062.

And at the same time, the 10-year Treasury was around 4. to 4.15%. Now look at where we are today. The SP 500 stands around 7,800 and near record highs. That's a huge move. But here's a strange part. Interest rates didn't fall while stocks were climbing. The 10-year treasury yield actually moved higher,

now sitting around 4.7%. So since April 2025, the S&P 500's climbed roughly 55% off the bottom, while the 10-year treasury yield has also moved higher by about half a percentage point. That gives us a very important question. How can stocks rise that much while interest rates are going up? And why has this been happening for more than the year? I think the answer comes down to one word, earnings.

There's a tug of war happening inside the market right now. One side, we've got rising earnings, pulling stock prices higher. On the other side, we've got higher interest rates, pulling stock valuations lower. So far, one side's been much stronger. But that could change, because depending on which side wins this fight, the mask gives us a possible path towards 8,500 or a possible fall towards 6,500. So there's a lot writing on what happens next.

Investors, before we break it down, if you'd like these videos that help make the markets in retirement investing easier to understand, subscribe to the channel, we put out videos like this to help you understand what's happening, why it matters, and how it could affect your retirement. Okay, so now let's get into it. Today we're going to look at the battle between earnings and interest rates. More importantly, we're going to look at the battle and what it could mean for the SP 500 through the rest of the year and into 2027. We're going to keep it simple.

Three points. Let's start with a force that's winning right now. That is earnings. For years on Stock Talk and here at Oak Carvis, we've talked about one simple idea. Over long periods of time, earnings help drive stock prices. Simple terms, companies make more money

and their businesses become more valuable. But there's another part of the equation. Interest rates help determine how much investors are willing to pay for those earnings. Think about buying a house. The house might be great. But what you're willing to pay can change depending on the interest rate you're paying on the loan. Stocks work a little differently, but the basic idea is similar. Right now, company earnings are doing some very heavy lifting. Facts that August 7th earnings insight showed second quarter earnings growing in amazing 50.4%

from one year earlier. Now, we've got to put a pretty big asterisk next to that number. Companies like Alphabet had some unusually large one-time investment gains. Those gains made made the headline earnings number look even stronger than it really was. So let's take out those one-time gains. Earnings growth drops from over 50% to roughly 32%. But stop and think about that for a second. Even after removing these one-time unusually large gains, earnings still grew about 32%.

That's enormous. This story isn't about only what already happened. Wall Street expects the growth to continue. Faxset currently estimates earnings growth of about 27.4%. 7.4% in the third quarter, 25.2% in the fourth quarter, and roughly 30% for all of the year in 2006. Next year, 2007, 13.6% is the current estimate. That's the first major piece of our puzzle. Earnings have been growing fast enough to overcome something that normally make life much harder for stocks. That's higher interest rates. And the strength isn't coming just from one or two companies.

10, the 11 S&P 500 sectors reported earnings growth year over year from a year earlier. Technology spend the biggest group. Technology earnings increased more than 70%. And earnings for semiconductor, semiconductor equipment companies increased a whopping 135%. Revenue also grew about 15%. There's another number I want investors to pay attention to. Profit margins. Margins reached about 16.9%. That could be the highest level facts that has ever recorded.

since it started tracking this information in 2009. Even if we remove Alphabet and the others with one-time gains, the margin would still have been around 15%. That still would be a record. So when you look underneath this market, you start to understand why stocks have been so strong. It isn't just excitement. It isn't just AI.

It isn't just simply investors hoping prices go higher. Companies are making a lot of money. That's the engine underneath this market. But if that's true, we've got another question. If earnings are this strong, why hasn't the stock market gone even higher? That's where the other side of our tug-of-war story enters. We've talked many times on Stock Talk about two big parts of stock market returns. The first is earnings, the second is the price investors are willing to pay for those earnings.

That's what people mean when they talk about PE ratios. We can make this pretty simple. Think of it like this. S&P 500 equals earnings times PE. Earnings rise 20% and investors are willing to pay the same price for those earnings. the market could theoretically rise by about 20%. But what happens if earnings rise 20% while investors decide they want to pay 10% less for those earnings.

Now some of those earnings growth gets canceled out. That's pretty close to what we're seeing today. At the end of June, FACSET said the S&P 500 traded it roughly 20.4 times expected earnings. By August 7th, that number had dropped two 20 times earnings. You might hear that and you might think stocks had fallen, But they didn't. The S&P 500 actually rose about 2.8%. So how can the market go up while its P.E ratio goes down? This is one of the most important parts of this whole story.

Expected earnings rose even faster than interest rates went up. Forward earnings estimates increased by about 4.7%. The market only rose about 2.8%. So even though stock prices went higher, earnings were growing faster than stock prices. That actually made the market slightly cheaper compared with expected earnings. earnings doing the work. But something pushing against it, the 10-year Treasury. Back in April of 2025, the 10-year Treasury yielded about 4.15%. Today, we're closer to 4.7, 4.75%. And that matters because Treasury bonds compete with stocks for investors' money. Imagine you've got some money to invest. If a relatively safe bond pays you only 2%, you may be willing to take a little extra risk by owning

stocks. But what happens when Treasury pays you 4%, or 4.5%, or maybe even 5%, suddenly the safer investment starts to look a lot more attractive. Some investors may look at the yield and say, why should I take so much stock market risk when I can earn this much from treasuries? That doesn't mean everybody sells their stocks, but it does change what investors may be willing to do and what they may be able to pay for stocks. And one way the market adjusts is through a lower PE ratio. So now, we can see our tug-of-war clearly. Earnings are pulling the S&P 500 higher, higher interest rates are pulling the P-E ratio lower. One force says stocks should be worth more, the other says investors shouldn't pay quite as much for them.

So far, earnings are winning. But that brings us to the part investors probably care about most. What happens next? Because depending on which side wins the fight, the math gives us three very different outcomes. Of course, nobody knows exactly where the S&P 500 is going to trade over the next year. And anyone who tells you they know exactly where it's going to be is making a guess. Instead, we can build three different scenarios. That's what some strategists do all the time.

And the math is surprisingly simple. We need two numbers, expected earnings, and the PE investors are willing to pay for those earnings. Right now, FACSET has the forward earnings PE ratio at about 20 times. The 10-year average is around 19 times. So let's use a simple round number for future S&P 500 earnings, 2027, a 400. Now we can ask, what might investors be willing to pay for $400 of earnings? This is where the story gets interesting. Let's start with a good outcome.

The bull case. Suppose earnings keep rising. Inflation slows and the 10-year treasury stays below 4 and 3 quarters percent. Investors may still be willing to pay roughly, 21 times earnings, take 400 in earnings, multiply it by 21, and you get an S&P 500 of around 8,400, 8,500 if you round up. What gets us there? Strong earnings, cooling inflation, and interest rates that stop moving higher. Notice something important. We don't necessarily need interest rates to collapse. They may simply need to stop fighting the market. Burnings keep climbing and rate stand or control. The earnings side of the tug of war could keep winning.

And the SMP 500 above 8,000 becomes a very reasonable possibility this summer. Let's change one part of this story. Let's change the interest rate. Suppose the 10-year Treasury moves towards 5%. Maybe inflation stays high. Maybe energy prices rise. Maybe huge spending on AI creates more demand for money and capital, raising interest rates. Maybe government deficits in treasury borrowing keep long-term rates higher. Whatever the cause, let's say interest rates keep climbing.

Companies could still be making lots of money. But investors may be saying, I'm not willing to pay 20 times or 21 times earnings anymore. Now, say a PE starts falling. to 18 times 400 of earnings. The SP 500 would trade around 7,200 then. At 17 times earnings, it would be around 6,800 on the S&P 500. Same companies, same $400 of earnings, but investors are willing to pay less for those earnings. That's the power of the P.E. ratio. And that's why interest rates matter so much. But there's one such scenario that's much more dangerous, because in that case, both sides of the equation start moving against investors. Imagine an economy that starts

slowing. Companies don't earn as much as people expected. Instead of 400 and S.P 500 earnings, maybe we get something closer to 360 or 370 next year in 2007. That alone would hurt. But now imagine inflation stays high at the same time. Interest rates move higher. The 10-year Treasury stays elevated and investors aren't willing to pay a high PE for stocks anymore. Now we've got two problems at once. Lower earnings and a lower P.E. Put a 17 and a half multiple on 370 in earnings, and you get an SP 500 around 6475. Let's round that to 6,500. And that's how you get a real bare case. It isn't because American companies suddenly stopped making money. It's because both forces turn against the market at the same time. Earnings slow down and disappoint, and the price

investors are willing to pay for those earnings falls. That's a combination we need to watch. So, What should investors be watching through the rest of 2026? Not 10 different economic indicators, not 20. Two. The first forward earnings estimates for the S&P 500, fact sets one public source you can use to follow them, and those earnings estimates moving higher, are they staying flat, or are they starting to fall? The second thing to watch is the 10-year treasury yield. Is it staying under control or is it moving toward 5% and beyond? Those two numbers tell us a huge part of the story of where the S&P 500 should go over the next six to 18 months. Since April 2025, we've seen something unusual.

Stock prices went higher and interest rates went higher too. Normally, those two things don't play nicely together for very long. But they can when earnings are growing fast enough to overpower the pressure coming from higher rates. And that's what we've been seeing for the last four to six quarters. Fact set gives us one number that may explain the entire market better than anything else. Since June 30th, the S&P 500 rose about 2.8%, but expected earnings rose about 4.7. Think about that. Stock prices went up, but earnings estimates went up even more.

That's why the P-E ratio could fall while the market itself kept rising. And that may be the biggest message investors should take away from this video. And S&P 500 at 8,000 doesn't require interest rates to collapse. If earnings stay strong enough over the next couple of months, earnings alone could help push the market there. Getting well above 8,500 at any time over the next year becomes easier if we get both pieces working together. Earnings would need to keep rising, and the 10-year Treasury finally would need to start falling.

Maybe the Federal Reserve becomes more willing to support the economy. Maybe inflation falls. Maybe financial conditions loosen. If that happens, both side of our equations could start helping stocks instead of fighting each other. But remember the other side. The real danger isn't simply higher interest. rates, we've already had higher interest rates while stocks were rising. The more dangerous combination is this. Higher interest rates and falling earnings estimates. Because the two forces

that's been fighting each other suddenly start pulling in the same direction, down. That's the combination that could turn a normal market correction, something closer to our 6,500 downside scenario in a bare market. So don't just watch the S&P 500 every day. Watch what's happening underneath it, earnings and interest rates, because right now, those are the two lines telling the real story. If we're getting close to retirement or you're already retired, this is where the conversation needs to move beyond simply asking where the S&P 500 might go next. The bigger question is, is your investment strategy prepared for more than one possible outcome? If you'd like someone to review your investments, your income needs, your risk, and how all those pieces fit together

through retirement, give Oak Harvest Financial Group a call. We can help you look at the bigger picture and build a strategy that's designed around your goals, not around guessing what the market's going to do next, because you can't control earnings, you can't control interest rates, and you cannot control the S&P 500, but you can control whether you've got a plan for what happens next. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice.

Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of future results.