The Bull Is Intact. The Index Is Not the Answer.

by AdvisorAnalyst Editorial Team | September 12, 2026

The S&P 500 sits near an all-time high. Second-quarter earnings growth came in at 51%, the strongest reading outside of post-recession recoveries. The equal-weight index is outperforming the cap-weight. Three quarters of S&P 500 constituents are in uptrends. By almost any traditional measure, the bull market is alive. And yet, across the most substantive market commentary published over the past month, a consensus has quietly assembled around a conclusion that the headline number obscures: the index, as a vehicle for capturing what remains of this bull market, is increasingly imprecise. The next leg is harder, narrower in its earnings drivers, exposed to a specific and measurable rate threshold, and headed into a seasonal and technical window that the historical record treats with unusual severity. The bull is intact. The S&P 500 is not the same thing.

The Earnings Case — Real, Record-Setting, and Already the Baseline

The foundation of the current market is extraordinary, and that is the problem.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, stated the situation plainly in a late-August conversation: "The consensus expectation for the S&P was 24%. And we're now running at 51% and change. And we have never seen a parabolic ascent in earnings like we are seeing right now."¹ She contextualizes the figure carefully: the only prior instances of comparable earnings surges occurred in post-recession recoveries, where depressed base figures made the mathematics easy. That is not today's environment. The driver is the AI capital expenditure cycle, whose reach extends well beyond semiconductors into materials, utilities, energy, and industrials — genuine earnings breadth.

But extraordinary becomes a liability the moment it becomes the benchmark. Richard Clarida, PIMCO's Global Economic Advisor and former Federal Reserve Vice Chairman, frames the structural risk with precision: 51% blended earnings growth for Q2 has set a baseline against which even strong future quarters may disappoint. Companies that beat published sell-side consensus can still fall — Samsung did exactly that — because "the whisper number or the hype number or the hope number" is what actually moves stocks.² Sonders reinforces this: "We can't keep setting the bar higher and higher and higher."

Russ Koesterich of BlackRock's portfolio management team identifies what makes the earnings story durable despite this risk. In his September 10 analysis of the momentum factor, he makes the case that today's price momentum reflects earnings momentum: "The Philadelphia Semiconductor Index (SOX) is expected to deliver over 100% earnings growth this year." The June–July sell-off, which saw momentum baskets drop more than 20%, was a function of overcrowding and excessive leverage rather than deteriorating fundamentals. Its consequence has been paradoxical: the correction "has created an unusual dynamic where many of the momentum names are now also value stocks." His conditional conclusion: "Assuming rates don't melt higher from here, stocks can and should finish the year higher."³

The Broadening — Confirmed, Then Complicated

The broadening of the bull market from a handful of mega-cap technology names to the broader index is no longer a thesis. It is a documented outcome.

Chris Galipeau and Lukasz Kalwak of the Franklin Templeton Institute published their verdict in August: over the prior 18 months, MSCI Emerging Markets returned 62%, Russell 1000 Value returned 40%, and Russell 2000 Value returned 39% — all comfortably ahead of the Magnificent Seven's 25%.⁴ Jurrien Timmer, Director of Global Macro at Fidelity, documents the same shift through a structural lens: with approximately 75% of S&P 500 stocks in uptrends and both the cap-weighted and equal-weighted indexes at simultaneous new highs, the market's foundation is broader than at any point since the current cycle began.⁵ When the Magnificent Seven fell roughly 9% and the broader AI complex dropped approximately 15% earlier this summer, the S&P 500 itself declined just 2.5% — what Timmer calls "a benign broadening rather than a bullish one," signaling diminished dependence on a narrow leadership cohort.

But Sonders draws a line that others have not drawn clearly enough: the rally is broadening; the earnings growth is not. Nvidia alone accounts for 18% of overall S&P 500 year-over-year earnings growth expected in 2026. Add Micron at 14% and two semiconductor stocks account for 32% of index-level earnings growth. The top ten contributors represent 65% of total S&P 500 earnings growth for the year. Prices have broadened. The actual earnings underpinning those prices have not. She frames the macro environment this creates with deliberate precision: "I think unstable is the better un-word to describe the current backdrop than the simple, more simple word of uncertain."¹

Franklin Templeton's Galipeau and Kalwak close their broadening confirmation with an equally pointed forward-looking message: "The next phase of the bull market is unlikely to reward concentration in a handful of expensive momentum stocks." Their advice to advisors: "Stay invested. Stay diversified. Be ready."⁴

The Rate Threshold — Specific, Measurable, and Close

The equity risk most precisely quantified in the past month is not macro or geopolitical. It is a specific yield level.

Koesterich's August 31 piece, "When Rates Begin to Bite," draws on more than 60 years of data to establish a clear relationship: when U.S. 10-year yields rise more than two standard deviations above their three-year average, S&P 500 monthly price returns average -1.70%. The three-year average currently sits near 4.3%. The threshold is therefore approximately 4.8% — precisely where yields peaked in early August. The market survived that touch. But Koesterich is unambiguous: "While the market has thus far been able to ignore rising rates, we're not far from the point where they have generally started to bite."⁶

The BlackRock Investment Institute, in its August 31 weekly commentary authored by Jean Boivin, Wei Li, Beata Harasim, and Natalie Gill, frames the same dynamic at the global level: U.S. 30-year yields have surged to a 19-year high above 5%, German 10-year yields have reached a 15-year high near 3.25%, and Japanese 10-year yields are approaching 3% for the first time since the mid-1990s. More than 80% of the global bond universe now yields above 4%.⁷ Their verdict: "The global reset in interest rates has further to run." The case for equities holds, but conditionally — "strong corporate earnings driven by AI investment are outpacing the headwinds from higher rates, but the case for equities is not unconditional."

The Structural Bid Is Weakening — The 1982 Engine Running in Reverse

The most consequential structural observation of the past month belongs to Bill O'Grady of Confluence Investment Management, writing in his August 31 Asset Allocation Bi-Weekly. The modern buyback era traces to a single regulatory event: the SEC's enactment of Rule 10b-18 in November 1982, which created a safe harbor for corporate share repurchases. Federal Reserve flow-of-funds data captures the magnitude of the resulting shift. Before 1982, only 19% of quarters registered negative corporate equity flows — companies were net issuers of shares in most periods. After the rule change, that figure inverted to 81% of quarters showing negative flows, as buybacks consistently exceeded new issuance, providing a structural, multi-decade suppression of equity supply.

That engine is now running in reverse. The surge in AI investment is absorbing capital that would otherwise flow toward repurchases. Companies funding data center build-outs are net equity issuers rather than net buyers. The anticipated IPO pipeline — SpaceX, Anthropic, and OpenAI among the named candidates — represents a structural increase in equity supply arriving into a market accustomed to a persistent supply deficit. O'Grady notes that historically, periods when cumulative buybacks slowed have correlated with market stalls. His prescription is measured but directional: diversify within equities toward value and international, segments "that carry less exposure to the dynamics that may create headwinds for large-cap U.S. growth stocks most dependent on buyback activity."⁸

The Near-Term Setup — A Tactical Reset, Not a Trend Reversal

Scott Rubner, Global Market Intelligence lead at Citadel Securities, provides the most operationally precise framing in his August 31 note. Since the March 30 low, the S&P 500 rallied approximately 22%, adding roughly $12 trillion in market capitalization in five months. Q2 EPS growth tracked around 33%, "the strongest pace outside of post-recession recoveries," with estimates following "the steepest upward revision path we have seen since at least 2000." With Nvidia reported, the largest earnings catalyst is now behind the market. The question Rubner poses: "What is the next catalyst that pushes equities meaningfully higher from here? A few weeks ago, the answer was easier."⁹

Three demand pillars that supported August equities are simultaneously eroding. Retail historically makes September its weakest month — "recording both the lowest proportion of annual retail net notional and the lowest directional skew of any month" since 2019. The corporate buyback bid faces accelerating blackout restrictions as companies enter the pre-Q3 earnings quiet period; more than $1.1 trillion in announced buyback authorizations moved back into an open window through August, now progressively closing. And systematic strategies — CTA, Vol-Control, Risk-Parity — have already rebuilt their exposure from the July lows and "no longer have the same reservoir of unused systematic buying capacity."

The volatility market adds urgency. S&P 500 skew is trading at its flattest level in a year, ranking in the first percentile over that period. One-month 25-delta downside protection fell to its cheapest level since December 2024. The VVIX — volatility of volatility — ranks in the first percentile since the start of 2025. Semiconductor implied volatility has collapsed more than 40% in 30 sessions. These levels coincide with a dense macro calendar: NFP on September 4, PPI September 10, CPI September 11, and the FOMC on September 16 — "a much more two-sided catalyst set" than the earnings season just concluded. Approximately $6.2 trillion in options notional expires September 18, and U.S. pension plans are at their highest funding ratios since 2001 (approximately 112%), creating mechanical de-gliding pressure into quarter-end.

Since 1928, September is the only calendar month in which the S&P 500 has finished lower more often than higher — declining in 55% of years with an average return of -1.1%. In midterm election years specifically, the pattern is amplified: an average return of -1.5% and an average peak-to-trough drawdown of -6.2%, with the weakness concentrating in the second half of the month before recovering in October. Rubner's stated position: "For the first time since the July reset, I would rather use strength to reduce some exposure and add inexpensive protection than chase the market higher into this event window." The longer-term view remains constructive: "I am not looking for the beginning of a broader bearish turn. I am looking for a tactical reset." The re-entry window he identifies is mid-October.⁹

5 Key Takeaways for Advisors and Investors

1. The earnings case is real, but it has become its own risk. Q2 blended EPS growth of 51% is the new baseline. Future quarters will be measured against it. Manage client expectations around the gap between sell-side consensus and the unpublished buy-side expectations that actually move stocks.

2. The broadening is real at the price level and insufficient at the earnings level. Two semiconductor stocks account for 32% of S&P 500 earnings growth in 2026. Index-level broadening and earnings-level concentration can coexist — and do. Portfolio construction should distinguish between the two.

3. 4.8% on the U.S. 10-year is the specific threshold that changes the equity calculus. Sixty-plus years of data show S&P 500 monthly returns averaging -1.70% when yields exceed two standard deviations above their three-year average. That threshold is approximately 4.8%. The early August peak touched it. The market survived. It may not be given another free pass.

4. The structural buyback bid that underpinned four decades of equity appreciation is weakening. AI capital expenditure is diverting cash from repurchases, and a pipeline of mega-IPOs will add supply. Value and international equities offer a disciplined reallocation that does not require a bearish macro view.

5. The tactical window through September favors reducing exposure and adding protection at historically cheap prices — not abandoning the bull market. Retail, corporate, and systematic demand pillars are thinning simultaneously. September is statistically the weakest month of the year. Downside protection is near record-cheap. The medium-term re-entry opportunity, per the historical midterm-year pattern, opens around mid-October.

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