Written by: Rita

The S&P 500 rose about 2.5% in August, all from the first two trading days at the beginning of the month. In the following three weeks, the market remained range-bound. The yield on the 10-year U.S. Treasury at the end of the month was only 5 basis points higher than at the beginning, and oil prices remained almost unchanged. Gold rose 9%, silver rose 22%, and Bitcoin rose 25%. The market appeared unremarkable, but the underlying real change is that earnings are catching up with valuations.

On August 31, Goldman Sachs released its end-of-month market intelligence report, reviewing key dynamics in the market during August. Goldman Sachs believes that the breadth and depth of the second quarter earnings season exceeded market expectations. The median company in the S&P 500 saw a 14% increase in earnings per share, while the current forward price-earnings ratio remains at 20 times. Year-to-date, the S&P 500 has risen 12%, with no expansion in valuations, as earnings growth has absorbed the rise in stock prices. More importantly, excluding AI infrastructure companies, the earnings growth rate of other stocks has also reached a new high in this cycle, with the earnings recovery spreading out.

Probability of Interest Rate Hike Increases, Inflation Expectations Not Anchored

August was a month of "nothing happened, but a little bit happened." The Federal Reserve remained inactive in July, but Warsh’s hawkish debut at Jackson Hole pushed the probability of a rate hike in September above 50%. Warsh described the inflation data as “concerning,” emphasizing that “we must be confident that underlying inflation is making progress toward the target clearly and swiftly, or we still have work to do.” He reiterated that the 2% PCE inflation target is a “firm and fixed goal,” downplaying recent signals of slowing wage growth, noting that wages have not effectively indicated trends in underlying inflation for a long time.

Goldman Sachs economists expect that the month-over-month core CPI and core PCE in August will each rise around 0.2%, with no rate hike anticipated. However, the uncertainty about the policy path has significantly increased; Warsh's hawkish tone indicates that if the anti-inflation process is hindered, a rate hike may be put back on the agenda. Goldman Sachs pointed out that decreased transparency from the Federal Reserve could lead to increased market volatility, as market sensitivity to data has significantly risen.

The Treasury announced in August that it would increase the monthly scale of Treasury bond repurchases to lower long-term yields. Goldman Sachs strategist Will Marshall believes that repurchases will marginally improve the technical aspects of the market but are unlikely to drive yields down significantly. The Strait of Hormuz has been closed for six months, one of the world's most important energy trade routes. Goldman’s commodity team noted that producers and shippers have gradually adapted, allowing more crude oil to flow out of the Middle East. Oil prices may have peaked, but there are significant upside risks for European gas prices. Goldman analyst Sam Dart maintains a benchmark forecast for European gas this winter at $50 per megawatt-hour but points out that if shipping through the Strait of Hormuz does not resume to Asia, the upside risks are significant.

Earnings Drive Stock Prices, AI Spillover Effects Are Spreading

The most fundamental change in the current market comes from the earnings side. The S&P 500 has risen 12% year-to-date, and the forward price-earnings ratio remains at 20 times, indicating that earnings growth has absorbed the valuation. During the second quarter earnings season, the median company in the S&P 500 posted a 14% increase in earnings per share, greatly exceeding the historical average. Goldman analyst Ben Snider pointed out that AI infrastructure stocks contributed a considerable portion of earnings growth, but other sectors are also accelerating their earnings. Excluding AI infrastructure, the earnings growth rate of other stocks has also reached a new cycle high. The earnings recovery is spreading from AI infrastructure to a broader range of industries.

NVIDIA delivered strong earnings in August, setting a path for a 70% year-over-year growth by 2027, with supply chain capabilities as the only remaining constraint. Goldman analyst Jim Schneider believes that NVIDIA's advantage lies in order visibility and gross margin transparency. Goldman utility analyst Carly Davenport pointed out that the growth in electricity demand and rising construction costs are driving increased capital expenditures in the power industry, with solar and wind energy still attractive.

The implementation of AI applications is also progressing. Goldman internet analyst Eric Sheridan noted that the market favors companies that can quickly demonstrate AI monetization rather than those that require lengthy return cycles. E-commerce platforms are benefiting from improved model accuracy and personalization, and the adoption of agent-based AI solutions is accelerating. Salesforce's collaboration with AI model developers is seen as proof that traditional software companies can not only survive but also thrive in the AI era. Goldman analyst Gabriela Borges believes that Salesforce’s case demonstrates the potential for traditional software companies to secure a place in the AI ecosystem through partnerships and product upgrades.

Mixed Signals from Growth and Inflation Data

The data released in August presents a complex picture. Goldman has raised its third-quarter GDP tracking forecast to 2.7%, and July personal consumption expenditures and core capital goods shipments exceeded expectations. The Philadelphia Fed manufacturing index rose to its highest level since 2021, with business confidence stemming more from forward expectations than current realities. Goldman economists noted that there is a disconnection between businesses' confidence in future expectations and current economic activity.

Regarding inflation, July's core PCE was slightly higher than expected, with the overall PCE year-on-year at 3.7%. Inflation has remained above target for five consecutive years, prompting market discussions about whether inflation expectations might decouple. Goldman economist Abhay Duggirala explored this issue in the report, concluding that inflation expectations are at most only mildly elevated and do not face immediate decoupling risks. Goldman views that inflation will gradually decline after the reopening of the Strait of Hormuz and the easing of tariff pressures, but progress has not been made on either front in August.

The market narrative for August can be summarized in one sentence: earnings are chasing valuations, but the macro direction remains unclear. The ISM Manufacturing Survey will be released on September 1, followed by non-farm payroll, CPI, and PCE data. Goldman will hold its annual Communacopia technology conference on September 8, followed by its Global Consumer and Retail Conference on September 14, at which more micro-level directional guidance will be provided.

Disclaimer

This article is a整理与解读 of third-party brokerage research reports (Goldman Sachs, August 31, 2026) by潮向研究, combined with整理 of public market information. The ratings, target prices, earnings forecasts, and related judgments cited in the text reflect the views of the brokerage's analysts, representing their affiliated institutions' positions, and do not represent the views of潮向研究, nor do they constitute any investment advice.

Markets carry risks; decisions must be made independently. This article should not serve as a basis for buying or selling any securities.