There are plenty of reasons for investors to be nervous about stocks right now. Inflation remains stubbornly high. Treasury yields are climbing. And traders now see a 90% probability that the Federal Reserve raises interest rates at its September meeting this week.
Yet I’m still buying and holding the Vanguard Total Stock Market ETF (NYSEMKT: VTI).
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The reason comes down to one thing. Corporate earnings are proving remarkably resilient and are projected to continue growing at a healthy rate through at least the end of 2027.
Stocks don’t necessarily need falling interest rates to move higher. If corporate profits keep growing fast enough, earnings can push stock prices higher over the next six to 12 months.
U.S. companies keep beating expectations
Second-quarter results showed how the artificial intelligence (AI) boom has been driving earnings growth. Strong reports coupled with revised guidance prompted Barclays to increase its 2026 earnings-per-share estimate for the S&P 500 (SNPINDEX: ^GSPC) from $337 to $365 and its fiscal 2027 projection from $389 to $414.
In addition, it raised its 2026 year-end S&P 500 forecast to 7,950, which would be another 4% gain from current levels.
Over the long term, equities need fundamental balance-sheet strength to move prices higher. They can continue to expand on rising valuations for a while. But ultimately, stock prices need to be supported by actual results, earnings, and cash flows.
The other bullish catalyst is that small-cap earnings are finally participating in the growth. AI development has helped reignite stagnant earnings growth in this segment and made it a compelling risk/reward opportunity based on current valuations. The Vanguard Total Stock Market ETF provides just enough exposure to this group to add growth potential without making the portfolio too risky.
AI could keep corporate earnings growing
The five largest tech companies are expected to have invested more than $1 trillion into AI by the end of this year. This theme has driven S&P 500 earnings growth over the past couple of years (and VTI’s as well), and it’s expected to continue to do so over the next several quarters.
There are probably going to be questions surrounding whether AI development needs to slow down for safety reasons. I don’t really see that happening. To slow down AI development would likely mean slowing down revenue and profit growth. Most companies don’t opt for that route. With so much money on the line, I see development and investment still continuing at a healthy pace.
