Why the stock market has been shocked this summer

This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

I have been shocked by three things this summer.

First, how many burpees I can do in 10 minutes. I’m proud of my progress on these; it’s taken a lot of hard work.

Second, the price increases on car cleaning products. I have no clue if it’s because of tariffs. But I sort of understand better why shares of Advance Auto Parts (AAP) are up 20% year to date, while Autozone (AZO) has rallied 25%, compared to the S&P 500’s (^GSPC) 10% advance.

The third shocker has been the current earnings season, which is coming to a close with results next week from Walmart (WMT), Target (TGT), and Home Depot (HD).

Looking for the simplest reason why the markets have seemingly gone up in a straight line this summer? It’s not necessarily because of the potential for a measly 25 basis point rate cut at the Federal Reserve’s September meeting.

Is a 25 basis point rate cut really that big of a deal? I would argue no, especially when there’s no indication it will be the start of up to eight rate cuts through 2026 — as some of my Wall Street sources have been talking about over $25 cocktails this month.

This earnings season equals rocket fuel for the stock market.

The stats tell the upbeat story.

According to FactSet data, 81% of S&P 500 companies have reported positive earnings per share surprises. 81% of S&P 500 companies have also reported a positive revenue surprise. Sectors with above-80% earnings beat scores include industrials, healthcare, financials, consumer staples, real estate, and information technology. Companies that have issued positive guidance have trumped those issuing negative guidance.

Second quarter earnings growth is clocking in at 11.8%, the third straight quarter of double-digit growth for the S&P 500.

Read more: Live coverage of corporate earnings

What’s more interesting is that despite all the whipsawing from the White House, companies are sounding less downbeat on the economy. At least from the standpoint of worrying about a recession.

Overall, the term “recession” was cited on 16 earnings calls conducted by S&P 500 companies this earnings season, according to FactSet. This number is trending well below the five-year average of 74 and the 10-year average of 61.

Whether this current earnings season will be as good as it gets for 2025 is anyone’s guess. Tariff inflation lurks in the third quarter, and the bar has been set much higher. Companies will enter the third quarter earnings season with above-historical valuations and expectations of strong 2026 outlooks or directionally bullish commentary on the path forward.

“It’s a fair point and it’s certainly a risk,” Truist co-chief investment officer Keith Lerner said on Opening Bid when I asked if second quarter earnings could be the best of the year.

“We also know from some reports, even from UPS, that a lot of these companies brought in inventory before the tariffs went into effect. So therefore their margins were probably helped.”

Another surprise for me has been how fast executives have been able to move to blunt Trump’s supply chain chaos. Many companies have now built in structural safeguards into their businesses to preserve profits from tariff hits. And if Team Trump chills out, the structural shifts could unlock even better earnings potential.

“We’ve done a lot [over the past 90 days to blunt tariffs], as you would expect, actually,” Cisco CFO Mark Patterson said on Opening Bid (video above). “So we’ve got a world-class global supply chain. And I think this is one of the places where our scale actually is an advantage for us. So the teams have been working hard.”

As always, investing is one big bag of surprises!

Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance