Stock markets withstand the rebound in energy prices and interest rates thanks to the strength of corporate earnings
By Mario Catalá
The re-escalation of the conflict in the Persian Gulf has led to a significant increase in the price of oil and other commodities, also feeding through into interest rates and inflation levels. Despite this scenario, global stock markets remain close to their all-time highs, supported by corporate earnings that have once again surprised positively and by a U.S. economy that continues to demonstrate remarkable resilience.
Market behavior thus reflects a clear contrast between the deterioration of certain cost variables and the strength of corporate earnings. Since the beginning of the war, there have been significant increases in numerous commodities, such as oil, which has resulted in substantial rises in fuel prices. One example is the price of diesel in the United States, which is reaching all-time highs of USD 6/gallon, compared with USD 3.75/gallon a year ago. However, net margins for S&P 500 companies have improved again, and earnings-per-share estimates for the third quarter of 2026 were revised upward by 1.2% during July and August, whereas analysts usually reduce their forecasts during the first two months of a quarter.
If future earnings estimates maintain their current growth rate, the S&P 500 may only need a forward P/E multiple of 19x (at the lower end of the historical range) to reach 8,000 points by year-end, which would still represent a 5% increase from current levels. Nevertheless, the environment continues to present significant risks, particularly regarding the evolution of U.S. public debt, the increase in financing costs, and the possibility that interest rates may remain high for longer.
United States
The U.S. economy remains positive, with activity indicators continuing to surprise on the upside in terms of their strength. August PMIs remained clearly in expansion territory, with the manufacturing PMI unchanged at 53.9, compared with the decline to 53.2 expected by the market, while the services PMI rose to 56.5 from 54.6 previously, although it came in slightly below forecasts. In both cases, the strong performance of the components related to demand stood out.
GDP for the second quarter of 2026 remained at 1.5%, pending its final revision. Meanwhile, the Federal Reserve Bank of Atlanta estimates that growth could reach 4.7% in the third quarter. This forecast has moved within a range of between 4% and 6.2%, so significant changes may still occur before the quarter ends.
Against these positive figures, consumption has shown some signs of weakness. Retail sales fell 0.6% in July, their first decline in more than a year, compared with the 0.2% growth expected. Consumer confidence has also been affected by the re-escalation of the armed conflict in the Persian Gulf. The Conference Board indicator fell in August to 89.4 from 90.2, while the University of Michigan survey stood at 51.7, compared with 55.2 the previous month.
Volatility continues to dominate labor-market data. In August, 162,000 nonfarm payrolls were added, well above the 55,000 expected, while the previous reading was revised from a loss of 23,000 jobs to a gain of 21,000. However, the ADP survey showed only 38,000 new jobs, compared with the 47,000 expected, while JOLTS job openings stood at 7.27 million. The unemployment rate remained at 4.1%, and labor-force participation increased from 61.4% to 61.6%.
As for prices, August CPI came in at 3.4%, one tenth higher than in July, while core inflation declined by one tenth to 2.4%, as expected. The Federal Reserve Bank of Cleveland estimates that CPI will end September at 3.43% and October at 3.38%, with core inflation close to 2.35% in both months. Its forecasts put PCE inflation at 3.91% in September and 3.80% in October.
Expectations regarding U.S. interest rates have been highly volatile. The market has shifted from anticipating that the Federal Reserve would keep rates unchanged to pricing in three 25-basis-point hikes over the coming months. The strength of employment data has added pressure on the Fed, making the evolution of inflation a key factor in its decisions. Furthermore, if the monetary authority begins a rate-hiking cycle, it is likely to act again in the following months.
This scenario is compounded by the deterioration of public finances. In July, the U.S. government collected USD 334 billion and spent USD 766 billion, generating a monthly deficit of USD 432 billion. Over the past ten years, tax revenues have increased by 65%, to USD 5.3 trillion, while spending has risen by 96%, to USD 7.3 trillion. National debt has more than doubled, from USD 19 trillion to USD 39 trillion, and interest costs have reached USD 1.37 trillion over the past twelve months, already making them the third-largest expenditure item within total national spending.
Europe
The European economy continues to feel the impact of higher energy costs, which have pushed inflation above 3%. Nevertheless, a favorable rotation is beginning to emerge within the manufacturing sector, with the strongest growth shifting from peripheral countries toward Germany and France. This movement could contribute positively to the performance of upcoming European macroeconomic indicators.
August PMIs remained constructive. The manufacturing index rose to 52.7 from 51.9 in July, in line with forecasts, while the services PMI stood at 51.6, just one tenth below the previous month’s level. Conversely, the second revision of second-quarter GDP reduced growth to 0.5%, compared with the 1% initially reported. Forecasts for 2026 as a whole put economic growth between 0.6% and 1%.
Retail sales fell 0.6% in July, when a 0.3% increase had been expected, although initial figures have undergone significant upward revisions in recent months. In contrast, investor confidence as measured by the ZEW Institute improved for the fourth consecutive month, reaching 31.4 points in August, exceeding both the 25.9 forecast and the previous 23.4 reading. The labor market has deteriorated slightly. The unemployment rate was revised to 6.4% in June and remained at that level in July. Europe has 11.2 million unemployed people, approximately 150,000 more than at the end of 2025, although the European population is estimated to increase by one million people during 2026.
Preliminary August inflation in the euro area rebounded sharply to 3.3%, from 2.9% in July, due to rising energy costs. Core inflation, which is less affected by oil, gas, electricity, and food prices, declined by one tenth to 2.4%. Against this backdrop, the European Central Bank raised its benchmark rate by 25 basis points last Thursday to 2.50%, despite numerous opinions that it should not make any changes given the economic weakness perceived across the continent. However, President Lagarde argued that inflation was taking too long to return to the 2% target, and that inflationary risks stemming from energy and geopolitics justified maintaining a more restrictive monetary policy. She also made it clear that this was not a precautionary rate hike, and that both the European economy and the financial system are prepared to withstand higher interest rates.
China
China’s geopolitical position has moved into the background since the beginning of the war in Iran. Its economy continues to show an inertial performance, with no clear signs of acceleration, but neither of significant deterioration. PMIs remain within the range observed over the past year, approximately between 49 and 51 points. Meanwhile, annualized GDP growth in the second quarter stood at 4.3%, compared with the 4.5% estimate and the 5% recorded in the first quarter.
The external sector continues to be one of the main sources of strength for the Chinese economy. Exports grew 25% year-on-year, compared with 23.9% in July, while imports increased 28.8%, up from 27.5% the previous month. However, the July industrial production index came in at 4.5%, below the 5% expected and the 5.3% recorded in June. As long as crude oil prices remain elevated, it will be difficult for growth in China’s industrial sector to accelerate.