The recent summer rally in U.S. equities, fueled by strong corporate profits, falling Treasury yields, and moderate oil prices, is set for critical scrutiny in the coming weeks, according to Raymond James.
In a research note, the firm emphasized that “this rally is built on low oil prices, declining Treasury yields, and steady labor market.”
“All 3 of these will be tested post-Labor Day as Russia/Ukraine continues, another month of jobs data is revealed, and the bond market digests an Appeals court ruling against the legality of some of President Trump’s tariffs,” the analysts added.
Raymond James noted that global equities have experienced a rising asset environment since April, with “nearly every equity index at all-time highs, credit spreads near record lows, [and] non-equity assets at all-time highs.”
The firm attributed this backdrop to “impressive corporate earnings results and 10-year Treasury bond yields that have trended down as the bond market has not reacted to the modest evidence of tariff induced inflation.”
Analysts also highlighted caution around artificial intelligence stocks. While capital expenditures at major cloud companies continue to expand, “the performance of AI stocks faded in late August as the market broadened” amid concerns about underwhelming new models and an MIT report indicating many AI projects are failing.
Looking ahead, Raymond James expects earnings growth in midcap and small-cap indices to accelerate through late 2025 and into 2026. Nonetheless, the firm warned: “The earnings expectations setup remains for broadening, but it was a year ago too.”
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