What Is Driving The Stock Market? LFG Daily - Septemeber 28th, 2026

Yields keep going up, both in the US and worldwide, with what seems like daily records being set. We’ve heard plenty of talk about how those high yields represent big problems for markets, but somehow the S&P 500 (SPY) is only 1% from highs. How does that work?

For starters, companies are primarily driven by earnings, and those earnings have been great. The market started the year priced for low-teens growth but instead we’ve seen expectations grow to 32%, with most of those expected earnings already realized. You can definitely argue about the quality of those earnings, but those are huge numbers.

Another way of looking at that is yields actually have had an effect. Price/earnings (P/E) have actually been going down (from 28 to 26, on a trailing basis) as rates have gone up, but not as much as earnings have gone up. Valuations down a bit, while earnings go up a lot, have allowed prices to go up. Should that valuation hit be bigger? Thus far, the market says no, probably because liquidity and earnings remain strong.

Along those same lines, corporate earnings tend to grow with nominal GDP. Those economy numbers also keep improving, so again, there’s little current need to worry about corporate earnings. Realistically, quite a bit of that economic growth is tied to AI capital spending, which is part of why companies associated with AI have held up pretty well. As long as expectations for AI spending keeps growing, a slowdown is unlikely.

There are limits, of course. We’ve seen an increasingly narrow rally, as those high rates are at least hurting the valuations, if not necessarily earnings, of a broader spectrum of companies. The SPX may only be a percent off highs, but the equal-weight version (RSP) is 6% off highs, and the Russell 2000 index of smaller companies is down -8% from highs.

Of course, this party won’t go on forever. As the chart above from Ryan Detrick shows, earnings growth is expected to slow down next year, in large part because the rush to spend on AI is expected to slow. That slowdown may not happen, but if it does, earnings growth won’t be the price support it has been. Growth slowing would likely hurt prices.

The stock market has considered high rates in pricing, earnings have just mattered more. Going forward, we’ll have to pay attention to both sides of that equation. Rates are largely thought to be going up because of the big AI and deficit spend. If that spend slows, can valuations expand? On the other hand, if earnings growth slows, can stock prices shrink?

As usual, the market cares very much about trying to get prices right. It may not be perfect and certainly doesn’t know the future, but it’s also not ignoring much of anything. If you decide you don’t like the prices offered, sell and buy something else. Broadly, I’d speculate the main things to watch are an AI-slowdown and lower rates, which would indicate that at some point in the future, we could see a rotation out of AI names and into other areas that can rebound with lower rates and a still-OK economy. As always, we’ll see what develops.

Core Durable Goods Orders were 0.3% m/m vs. exp. 0.6%, while the headline number was 0% vs. exp. -0.4%. That’s pretty noisy, with the core soft but headline strong. On a Y/Y basis, Core capital goods are up 11%, so the trend has been good.

UMich Consumer Sentiment was 48.1 vs. exp. 47.6.

The US rejected Iran’s truce offer, which is raising yields and oil and sinking risk assets. Further talks are expected this week.

The China-US meetings ended on a high note, with Xi saying the future looks bright. They also agreed to cut tariffs on $30B worth of goods.

Dallas Fed Manufacturing today.

Bottom line: For some reason, markets are taking Iran negotiations very seriously this morning.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Disclosures/Regulation:

This content is intended to provide general information about Lloyd Financial. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Past performance is no guarantee of future returns.

Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable

Want a clearer view of where you stand? Schedule a free portfolio analysis.