September Market Update: AI Innovation and Profits Fuel Market Confidence

As summer winds down and September begins, investors are navigating a market shaped by strong corporate profits, debates about the promise of artificial intelligence (AI), evolving monetary policy expectations, and ongoing geopolitical conflicts. While volatility has increased at times, the backdrop for investors remains fundamentally well supported.

One of the most important pillars supporting the backdrop for the stock market has been corporate profits. Second quarter earnings growth for the S&P 500 is tracking to a stellar 31% excluding mark-ups of investment holdings, while analysts continue to raise forecasts for the second half and 2027. Solid earnings growth across a broad range of sectors has strengthened the fundamental case for stocks. If not for large non-recurring charges by two healthcare companies, all 11 S&P sectors would have grown earnings by 9% or more in the quarter.

At the same time, investor attention has remained squarely on AI. Recent results and commentary from major technology companies have reinforced their confidence that AI investment will drive innovation and profitable growth, even as market participants debate potential payoffs. Strong outlooks from leading technology companies, including the world’s largest company NVIDIA and some software firms perceived as vulnerable to disruption, have helped maintain investor enthusiasm and put a floor under most AI stocks.

Overall, we remain constructive on the stock market outlook, supported by robust and broadening corporate profit trends, a resilient U.S. economy, and continued AI innovation. While higher interest rates, ongoing geopolitical conflicts, and midterm election-related policy uncertainty may create short-term market swings, maintaining a disciplined, diversified investment approach remains the most effective way to navigate a dynamic market environment. We will continue to monitor market fluctuations to take advantage of potential opportunities that may emerge after Labor Day.

As always, please reach out to us with any questions you may have!

Valley Oak Wealth Management Investment Team 

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