Is the Stock Market Rally Built to Last?
The stock market faced meaningful stress earlier this year, tied in part to the war in Iran and the surge in energy prices that followed. But the pressure didn’t last long.
As oil prices retreated, ceasefire talks advanced, and investors began looking beyond the worst-case scenarios, equities quickly recovered. But the pace of the recovery has unearthed the same question investors have been asking for years now: is this rally sustainable for much longer? I understand the sentiment. Just about every investor probably experiences some degree of concern when stocks are near highs, because it can feel as though the market has less room to run and more room to fall
Fortunately, however, market history does not support the idea that new highs should be viewed skeptically. During long bull markets, all-time highs often lead to more all-time highs, especially when corporate earnings continue to exceed expectations. And on that front, U.S. corporations have been doing remarkably well.
To illustrate this point, the metric I’ll focus on this week is net profit margin. A company’s net profit margin measures how much profit it keeps from each dollar of revenue. If a company generates $100 in sales and keeps $15 after expenses, taxes, and other costs, its net profit margin is 15%. For the overall market, margins help investors understand whether companies are merely growing sales or actually turning those sales into bottom-line earnings.
On this metric, corporate America looks very strong, with the net profit margin for S&P 500 companies hitting 14.8% in the first quarter. That’s the highest level of profit margins in at least a decade, and in the second quarter it’s only expected to fall to 14.2%. If we reflect on the first half of the year, it’s margins that help explain the market’s resilience in the face of geopolitical, inflation, interest rate, and valuation concerns. Investors are seeing evidence that many companies have been able to protect profitability despite a difficult environment.
Contrary to many media narratives on the markets, this is not solely a technology story. Technology remains a major contributor, and AI-related infrastructure companies have delivered significant profit growth. But the margin strength has been broader than technology alone, with sectors such as financials and industrials also reporting margins above their five-year averages in the first quarter.
Of course, none of this means the rally is risk-free.
Valuations remain elevated, which means the market may have less room for disappointment. If earnings growth slows, profit margins compress, or interest rates move higher, stocks could become more vulnerable to volatility. AI-related spending is also worth watching. Some companies are earning enormous profits from the buildout, while others are spending heavily to keep pace. That balance may shift over time.
The broader point I want to make here, however, is that a market near highs is not automatically fragile. It becomes fragile when expectations rise faster than the earnings power needed to support them. In my view, expectations are currently being anchored by geopolitical and inflation concerns (amongst other concerns), while earnings continue to come in better than expected.
Bottom Line for Investors
Investors often look at a rising market and ask when it will stop. A better question is what is allowing it to rise in the first place. Right now, the answer is not just optimism or momentum, in my view. It has been the ability of companies to defend margins, grow profits, and absorb a tougher backdrop than many expected.
That being said, I’m not making the argument that investors should dismiss valuation risk or assume the market can rise uninterrupted. The more important question is whether profits continue to justify prices. For now, the earnings backdrop suggests the market’s recovery has more support than a ‘fear-of-heights’ narrative implies.
- Wall Street Journal. June 29, 2026. https://www.wsj.com/finance/stocks/why-wall-street-bulls-arent-worried-about-sky-high-stock-prices-79db9e16
- Factset. 202
Warsh’s Fed Overhaul Begins with Five Advisory Task Forces
Federal Reserve Chair Kevin Warsh is starting to put his stamp on the central bank, naming outside advisers to lead five task forces that will review how the Fed operates. The groups will focus on productivity and jobs, public communications, the Fed’s balance sheet, inflation, and the quality of economic data used to guide policy. Put another way, Warsh wants a fresh look at some of the biggest questions facing the Fed, which include how AI could affect productivity and employment, whether the Fed should say less about future policy, how large its bond portfolio should be, how it should think about inflation after the post-pandemic surge, and whether traditional government data are still enough to understand a changing economy. That is a broad agenda, and it fits with Warsh’s stated desire to rethink parts of the post 2008 Fed playbook. Some investors may see this story and envision a “shake-up” is coming, which could potentially create instability or uncertainty in the U.S. financial system as we know it. In reality, however, we should not view these task forces as a coming tidal wave of change. The task forces are advisory only—they can produce recommendations, but the Federal Open Market Committee is under no obligation to adopt them. Any meaningful change would still require buy-in from Fed governors, regional bank presidents, and staff. What we’re seeing at this stage is not a new Fed operating model, but rather a signal of where Warsh wants the debate to go. The process may produce real changes, but it could also end with a set of reports and incremental adjustments.
The U.S. Housing Market Is Still Waiting on Better Affordability
Existing-home sales fell 2.4% in June to a seasonally adjusted annual rate of 4.09 million, ending the key spring selling season with a whimper. Economists had expected sales to rise, which makes the decline another reminder that housing remains highly sensitive to affordability. The national median existing-home price reached a record $440,600 in June, up 1.8% from a year earlier, while the 30-year fixed mortgage rate recently averaged 6.43%. That combination continues to make monthly payments difficult for would-be buyers, especially first-time buyers. To be fair, there were also some minor signs of improvement in the latest batch of housing data. June sales were still 2.8% higher than a year ago, inventory has improved, and wage growth is running ahead of home-price growth. But the recovery remains uneven because small changes in mortgage rates can still change the math quickly for buyers, and with the war in Iran potentially back on, upward pressure on the long end of the curve could be nigh. In our view, until affordability improves more meaningfully—through lower rates, slower price growth, higher incomes, or some combination—the housing market is likely to remain stuck in a stop-and-start recovery.
Renewed Iran Fighting Puts Oil Inventories Back in Focus
Oil prices had calmed after the temporary U.S.-Iran ceasefire, but the latest exchange of fire is a reminder that the energy market’s biggest vulnerability has not gone away. And that vulnerability is inventories. U.S. commercial crude stockpiles rose by 3 million barrels last week, the first increase after 10 straight weekly drawdowns, but reserves remain low. The Strategic Petroleum Reserve recently fell to its lowest level since 1983, while the Cushing, Oklahoma storage hub has reportedly reached operational limits that could make further withdrawals difficult. The issue is even more pronounced in refined products. Gulf Coast gasoline inventories are well below normal seasonal levels, diesel stocks are near their lowest levels since the early 2000s, and U.S. fuel exports remain elevated as American refineries help replace disrupted supply abroad. Gasoline prices have already risen meaningfully since the conflict began, even though crude prices are well below their spring highs. For investors, if fighting continues or Hormuz traffic is disrupted again, the market may have less cushion than it did earlier this year. The current risk is not just higher crude prices, but renewed pressure across gasoline, diesel, inflation, and consumer spending.
REFERENCED ARTICLES:
- Wall Street Journal. July 9, 2026. https://www.wsj.com/economy/central-banking/fed-names-leaders-of-warshs-task-forcesb756375d?mod=economy_lead_story
- Wall Street Journal. July 9, 2026. https://www.wsj.com/economy/housing/spring-home-selling-season-ends-on-a-bad-notea81071a0?mod=economy_lead_pos1
- Fred Economic Data. July 9, 2026. https://fred.stlouisfed.org/series/EXHOSLUSM495S
- Wall Street Journal. July 5, 2026. https://www.wsj.com/finance/commodities-futures/a-sudden-glut-of-oil-threatens-to-weaken-iranshand-in-talks-adfcf7c0?mod=series_israeliranhav
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