August Market Commentary | Record Earnings Meet a Restless Bond Market

August's strong earnings and rising long-term bond yields are two sides of the same stronger-growth, higher-borrowing-cost environment, making diversification more important despite continued equity gains.

• The MSCI All Country World Index rose 2.6% in August, emerging markets gained 3.2%, the S&P 500 2.6%, and Canada's S&P/TSX Composite 3.0% in Canadian dollars, but leadership remained narrow across sectors.
• S&P 500 second-quarter earnings per share increased 53% year over year and sales nearly 16%; profit upgrades outnumbered downgrades by almost two to one, supported by consumer spending, AI investment, and tariff refunds that Apollo estimated could add roughly four percentage points to third-quarter growth.
• The earnings boom has weaknesses: economy-wide profits rose 9% quarter over quarter while total-factor productivity fell 0.4% year over year, and record corporate-profit shares coincided with a record-low labour share, suggesting AI-related spending may not yet reflect durable organic demand.
• The momentum trade weakened as a broad-market index strategy outperformed a basket of large technology names, while the 30-year U.S. Treasury yield reached 5.33% in mid-August; month-end yields were 4.34% for two-year and 4.75% for 10-year Treasuries.
• Rising yields reflected stronger growth expectations, a higher term premium, heavy government borrowing and record corporate bond issuance for AI infrastructure; U.S. federal debt exceeded $40 trillion, and Treasury purchases of 10- to 30-year bonds briefly reduced the 30-year yield by about 10 basis points.

Takeaway: The author remains broadly bullish but argues that concentrated equity leadership, uncertain AI productivity, rising debt supply, volatile rates and geopolitical oil risks require disciplined diversification across asset classes, regions and investment styles.