Stock Prices, Earnings and Cashflows: The AI Effect plays through!
In a post at the end of August 2026, I talked about interest rates in 2026 and marveled at the capacity of equities to keep rising in the face of rising rates. I argued that the resilience of stocks during the year could be traced to higher-than-expected earnings being reported by companies in 2026, and a concurrent increase in expected earnings in 2027 and 2028. Now that September 2026 is one…
In the closing days of August 2026, a post reflected on how equities managed to continue rising despite increasing interest rates. The author suggested that the resilience of stocks during the year could be attributed to higher-than-anticipated earnings being reported by companies in 2026, with projected earnings growth expected in 2027 and 2028.
With September 2026 proving to be a record month, it was time to delve deeper into the data, particularly as the month witnessed one of the largest increases in treasury yield rates in recent history, while stock prices remained steadfast.
The post begins by updating the previous chart on treasury rates, which showed that the ten-year rate surged from 4.75% at the beginning of September to 5.29% by the end. This 54 basis point increase in the ten-year rate placed it among the top 10% of monthly rate changes experienced between 1962 and 2026. Despite the rate hike, the stock market managed to hold its ground in September, as illustrated in the chart showing aggregate market values by month and sector.
The market capitalization added across all stocks in September 2026 amounted to $2.5 trillion, with almost $1.5 trillion coming from the technology sector alone. Examining the aggregate market caps by quarters, it was observed that technology, energy, and materials were the three sectors driving the market's growth, with technology being the primary contributor.
However, the percentage of companies within each sector that were up for the year ranged from 50% across the market to 65% in the third quarter, where about 65% of all listed stocks experienced a decline in stock prices.
The jump in US treasury rates in September 2026 had an impact on the equity risk premium, as it dropped below 4% for the first time this year. Even as the ten-year treasury rate climbed from 4.18% to 5.29%, the expected return on stocks increased from 8.41% at the start of 2026 to 8.99% on September 30, 2026. The post goes on to discuss the implications of AI-driven capital expenditures (cap ex) on corporate financial statements, highlighting the complexity of the story surrounding AI investments.
Written by urgent.news from Musings on Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
