As the month closes, we at Cornerstone view August as a perfect example of how important it is to be disciplined and to trust objective data. At CFS, our data-driven approach, first and foremost, attempts to remove the inherent emotions that arise when every physical instinct screams the opposite of what we know the underlying data reflects.
This discipline has been especially necessary in the second half of August. What do we mean by this?
As of this writing, the S&P 500 is up 2.8% for the month. But since the middle of the month, the equity market has been range-bound, driven by a handful of uncertainties that created a lack of visibility.
But last week there were some clearing events. They began to bring back some visibility and set the stage for stocks to resume strength and momentum.
First was the July core personal consumption expenditures (PCE) reading, which was in line with the expected increase of 0.02% month-over-month:
This data affirmed a continued softer inflation path for the market. It also alleviated undue pressure on the Federal Reserve to cut rates come September.
Second, after the market closed last Wednesday, Nvidia (undoubtedly the most important AI company) reported earnings. The magnitude of how easily it beat Wall Street expectations as well as the astounding forward guidance affirmed that the AI infrastructure Supercycle trade remains intact.
In fact, the strength of Nvidia's earnings was reflected by Thursday morning’s positive reaction – an immediate jump of over 6%:
This was due to key financial metrics like revenue coming in at $96.2 billion, which was up 106% from a year ago. Earnings per share hit $2.22, beating the estimated $2.09, and up 111% from a year ago. Furthermore, gross margin was an astounding 75% for the quarter.
Perhaps most importantly, Q3 revenue guidance offered a top end of $108 billion, while at the same time forecasting “conservatively” for 70% revenue growth in fiscal 2028.
Lastly and briefly, the third clearing event taking place was Fed Chair Kevin Warsh affirming a dovish position during his Jackson Hole speech.
We at CFS think these clearing events help create the visibility the market has sought over the last couple of weeks. They also confirm the underlying fundamental foundational support for equities.
The events come after a period where headlines looked alarming, triggering emotional reactions by many. A big example of this is when the 30-year Treasury yield touched 5.33% (before softening somewhat), a level not seen since 2007:
Bond vigilantes were in open revolt, so much that Treasury Secretary Scott Bessent announced a doubling of debt buybacks to try to place a ceiling on long-term rates. There clearly were some emotionally negative reactions during this time considering the Nasdaq composite fell for six straight trading days from Aug. 17-24.
On the surface, some would believe this looked like damage. But underneath the noise, the fundamental strength and effective flow data told a much more sophisticated story.
Specifically, the top six exchange-traded fund inflows were all gold funds, which are a classic macro hedge against bond market volatility and inflation. But interestingly, right alongside gold we saw the first significant inflows this year into Ethereum and Bitcoin ETFs simultaneously.
That combination of hard asset hedging plus cryptocurrency risk-on is not a historical indication of panic. It’s repositioning and further supporting evidence of the dynamic seen from Aug. 17-26 where global and domestic equity ETFs also attracted significant inflows while investment grade income ETFs saw outflows:
This type of repositioning is a risk-on indicator rather than investors taking their ball and going home. Underlying objective data showed how money wasn't leaving markets but changing seats, which has been a constant Q3 theme.
Also, as we've discussed all year, we can't ignore the political overlay as we enter September. Midterm election rhetoric will add a new layer of uncertainty as it ratchets up. However, this uncertainty will subside once election outcomes are clearer.
Even with the emotional handwringing that will assuredly come with this rhetoric, we still know that beneath it all, corporate America’s fundamentals will continue to crush it. The fundamental strength is reflected in the Q2 2026 blended profit margin for the S&P 500, which now reached 16.9% (the highest reading since FactSet began tracking in 2009):
Analysts are also now projecting full 2026 S&P 500 earnings growth of 30%:
These astronomical figures aren’t just due to a handful of winners. In Q2, 88% of companies reporting beat their per-share earnings expectations, reflecting continued broadening strength.
The AI infrastructure build-out isn't conjecture anymore. It’s in the numbers.
For us here at CFS, this is where disciplined objective data analysis matters the most. Having conviction and belief in the objective fundamentals is what removes the risk of reacting emotionally.
During August, many high-growth technology and optical networking companies experienced significant volatility and downward pressure even as they reported record revenue and earnings results. Data told us those businesses remained exceptional even while the tape was broken.
This is what August markets have a history of doing to high conviction, fundamentally strong equity positions. Remember that senior traders are away and juniors are staffing the desks. Market makers see big sellers and yank their bids, knowing somebody must get out.
The physical reaction of watching this daily is genuinely unpleasant. It can sometimes feel like the market knows something you don't.
But objective data told us otherwise.
Even in the face of the market's reactions in the second half of August, the Big Money Index from MoneyFlows – a gauge of institutional investor activity – barely moved:
That alone is an indication that this was not a market in distress. It was rotation ahead of midterm elections, hedging macro uncertainty, and forcing out over-levered positions through thin August liquidity.
Yes, the midterm election script remains intact for September. But even if you think danger is near, our data instruments currently say otherwise.
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