Investors and global markets faced no shortage of geopolitical and macroeconomic concerns during the quarter, including a reacceleration of oil prices, higher bond yields, ongoing questions surrounding the pace of the AI-related data center buildouts, new trade tariffs, and persistent government deficit spending. Despite these headwinds, the global economy remained resilient and corporate earnings continued to exceed expectations.
The second quarter earnings season was particularly strong, with S&P 500 earnings increasing 52% year over year, more than double the consensus expectation of 23.6%. This was the strongest earnings growth since the post-pandemic rebound in the second quarter of 2021. Revenue growth reached 15.5% year over year, the highest level since the fourth quarter of 2021, while net profit margins expanded to 17%, the highest reading since FactSet began tracking the metric in 2009. Against this backdrop of robust corporate fundamentals, the S&P 500 reached a record high of 7,798.99 on August 13, even as U.S. Treasury yields also climbed to multi-decade highs. As third-quarter earnings season unfolds over the next few weeks, we do not expect to see any signs of a meaningful slowdown.
The global economy is adapting to a higher interest rate environment after nearly 20 years of exceptionally low borrowing costs. Consumers now face higher mortgage, auto loan, and credit card rates, while strong labor markets continue to support spending. The housing market illustrates this transition clearly. In the U.S., 30-year mortgage rates currently average roughly 7.50%, while 15-year mortgage rates average approximately 6.75%. These higher rates reduce affordability and slow activity, though limited inventory has helped support home prices. Businesses have become more focused on profitability, cash flow, and capital efficiency as financing costs remain elevated. Governments, meanwhile, are confronting rising debt-service costs as pandemic-era borrowing is now being refinanced at higher rates.
Global financial markets have also been adjusting to a world where capital is no longer free. Fixed-income investments once again offer attractive yields, restoring competition between stocks and bonds and rewarding companies with strong balance sheets, robust interest coverage ratios, and durable earnings. Even though inflation has moderated from its post-pandemic highs, suggesting that tighter monetary policy is having its intended effect, it is still significantly above the 2% target set by the Federal Reserve, which is why the Fed recently raised interest rates and could continue.
Looking ahead, we believe equity markets can continue to appreciate despite operating in the current higher-rate environment, but risks remain elevated. For bonds, the adjustment to a higher-rate environment has been more orderly than many anticipated. It remains unclear whether current levels of interest rates, yields, and government borrowing can be sustained indefinitely without creating additional headwinds. Slowing growth, persistent inflation pressures, higher energy costs, rising government debt burdens, and ongoing geopolitical uncertainty could challenge both economic activity and market sentiment. As a result, we will maintain a balanced, diversified, and disciplined investment approach incorporating alternative investments alongside traditional equities and bonds to help dampen market volatility. We remain diligent and prudent as markets continue to navigate an environment characterized by both resilience and uncertainty.
This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.