Can markets keep it up?

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   By Guest Blogger Ryan Lewenza

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Global equity markets continued to advance in the second quarter, with strong gains in North America. The S&P 500 and TSX rose 14% and 6%, respectively, during the quarter. In the U.S., technology stocks, particularly semiconductor companies, rallied strongly due to continued growth in the AI sector and ongoing investment in AI data centres.

Equity markets rallied strongly in Q2

Source: Stockcharts.com

The scale of this investment is remarkable. There are currently hundreds of data centre projects under construction across the U.S., with roughly 1,900 additional projects in the broader development pipeline. That’s a lot of computer equipment, Nvidia chips, construction materials, electrical infrastructure, and heavy Caterpillar equipment being purchased and put to work right now.

AI is no longer just a technology story; it is becoming an important economic growth story as well. The Federal Reserve estimates that AI-related investment is contributing between 0.5 and 1.3 percentage points to U.S. GDP growth, making it one of the most important drivers of U.S. economy today.

The other major story in the second quarter was the remarkable strength in corporate earnings. At the start of earnings season, S&P 500 profits were expected to increase an already impressive 23% year-over-year (y/y). However, once results were finalized, U.S. corporate earnings had surged nearly 50% y/y, marking one of the strongest earnings growth rates we have seen in years.

While the technology sector continues to deliver exceptional results, driven in part by ongoing investments in artificial intelligence, strong earnings growth has been broad-based across many sectors. The energy sector led the way, with earnings rising almost 150% y/y, while the materials, financials, and industrials sectors also posted solid double-digit gains.

Corporate earnings remain one of the most important drivers of stock prices. These exceptionally strong earnings results in both the U.S. and Canada are a key reason why equity markets have continued to climb to new all-time highs despite ongoing economic and geopolitical uncertainties.

S&P 500 earnings were stellar in the second quarter

Source: FactSet

Finally, as we’ve continued to emphasize in our weekly client calls and blog posts, oil prices remain the single most important variable to monitor for both the economy and financial markets. While President Trump has stated that the U.S. remains in control of the Strait of Hormuz and that oil tankers continue to move through the region, the reality appears far more concerning. Shipping traffic through this critical waterway has declined dramatically amid the ongoing conflict between the U.S. and Iran.

As illustrated in the chart below, prior to the conflict, roughly 130 to 140 vessels passed through the Strait each day. More recently, that number has fallen sharply, with only a fraction of the normal volume transiting the waterway.

This matters because global oil inventories have already been trending lower. In the U.S., for example, the Strategic Petroleum Reserve has been significantly drawn down in recent months, leaving less of a buffer against potential supply disruptions. With global inventories declining and approximately 20% of the world’s oil and natural gas flows typically moving through the Strait of Hormuz, any prolonged disruption could create a meaningful supply-demand imbalance.

The key risk is that higher oil prices eventually feed through to broader inflation. If inflation begins to reaccelerate, the Federal Reserve and other central banks may be forced to raise interest rates. Historically, rising interest rates have acted as a headwind for economic growth and equity markets. This is why a resolution to the U.S./Iran conflict remains so important and why we continue to view oil prices as one of the most critical indicators for investors to watch.

All told, we remain bullish on the outlook for equity markets, supported by a resilient U.S. and global economy, a Federal Reserve that remains on hold, and exceptionally strong corporate earnings growth.

That said, investors cannot afford to ignore the risks. Developments in the Strait of Hormuz and the direction of oil prices warrant close monitoring, as any meaningful supply disruption could have significant implications for inflation, interest rates, economic growth, and, ultimately, equity market performance.

Ship traffic through the Strait of Hormuz remains low

Source: Kepler

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/08/22/can-markets-keep-it-up/