August 8, 2026 · Michael Vodicka · 7 min read
The S&P 500 held its ground through a quiet July, then broke out to an all-time high last week. The index is up about 12% on the year. Here’s what’s working, what I’m watching, and why the next two months on the calendar deserve a word.
A Flat July and a Record August for the S&P 500
July was the flattest month we’ve had all year. The S&P 500 opened the month at 7,499 and finished at 7,489.72 — a decline of about 0.1%. Small as that is, it broke a streak: it was the first down July since 2014, ending eleven straight positive Julys.
But the headline number hides what actually happened. Roughly 59% of S&P 500 companies rose in July, and the equal-weight version of the index gained about 1.1% while the one you read about in the paper fell. The entire drag came from one place: semiconductors. The iShares Semiconductor ETF dropped 22.1% in July, its worst month since December 2002 — and it’s still up nearly 68% on the year. When a handful of enormous companies move together, they can outvote hundreds of smaller ones.
Then August arrived. The market rallied 3.6% last week — its strongest week since April — and closed Friday at a record 7,757.64. Chips stabilized, oil fell on progress toward reopening the Strait of Hormuz, and a soft jobs report pulled Treasury yields down. Two months of going sideways resolved higher in about four sessions.
S&P 500 Monthly Returns — 2026
April did the heavy lifting. June and July gave back very little — and August has started strong.
+0.9%
−0.6%
−4.3%
+10.0%
+4.8%
−1.1%
−0.1%
+3.6%
* August is month-to-date through the August 7 close. Price returns. Sources: S&P Dow Jones Indices, StatMuse.
Why the Market Rallied
If there’s one explanation for what happened over the last few weeks, it’s earnings. The other headlines helped — oil came down, yields eased, chips stabilized — but those were the assists. The primary reason stocks rallied is that the second quarter turned out to be the best earnings quarter corporate America has delivered in five years, and it kept getting better as the season went on.
With 88% of the S&P 500 now reported, 86% of companies have beaten estimates — the highest share since 2021, against a five-year average of 78%. Revenue grew 15%, the fastest pace since 2021, and every one of the eleven sectors contributed. Back on June 30, analysts expected Q2 earnings growth of about 23%. Companies came in far above that, and estimates for the rest of the year moved up rather than down.
That’s really the whole mechanism. Stocks follow earnings over time, and earnings came in well ahead of what the market was priced for back in June. When that happens, prices tend to catch up — sometimes gradually, and sometimes, as we saw last week, all at once.
The Next Two Months: August and September Seasonality
I flagged this back in June, and now we’re here, so let me revisit it. August and September are the weakest back-to-back stretch on the calendar. They’re the only two consecutive months since 1945 that both carry a negative average return.
It’s worth keeping those numbers in perspective. They’re averages built from more than seventy years of data, and the spread around them is wide. September is the only month since 1950 that has finished positive less than half the time — which also means it finishes positive nearly half the time. It’s a mild statistical tilt, not a forecast.
So I’m not selling anything into it. What I’m doing is setting expectations. If we get a choppy six weeks between here and October, it will look alarming in the headlines and it will be fairly ordinary in the data. Knowing that in advance tends to make it much easier to sit through.
The Bigger Picture: The 2026 Midterms
Election Day is November 3, and this is where the seasonality conversation gets more interesting. Midterm years are historically the choppiest of the four-year cycle — since 1932 the S&P 500 has averaged a price return of about 5.8% in midterm years, the weakest of the four. That’s the statistic that usually gets quoted.
The one that gets quoted less often is what comes next. The twelve months after a midterm election have averaged roughly 16.3% — the single best stretch of the entire presidential cycle. Roughly 87% of midterm years finish positive overall, and the fourth quarter of a midterm year has historically averaged better than 5% on its own. Markets aren’t really bothered by elections. They’re bothered by uncertainty, and an election resolves it.
Average S&P 500 Return by Year of the Presidential Cycle
Price return since 1932. We are in the midterm year now — the pre-election year is next.
2025
+7.5%
2026 — we are here
+5.8%
2027 — next
+16.3%
2028
+6.1%
Source: RBC Wealth Management. S&P 500 price return by year of the presidential cycle since 1932. Past performance does not guarantee future results.
Put the two patterns together and you get a reasonably coherent picture of the rest of the year: a softer, noisier stretch through September, followed by a calendar that has historically improved once the election is behind us. History isn’t a guarantee, but it’s a useful frame for what’s ahead.
3 Reasons to Be Bullish
Beneath the seasonal noise, the fundamentals underneath this market got better over the summer, not worse. Three things stand out.
1 The Earnings Strength Looks Durable
A great quarter only matters if it holds up under scrutiny, so let’s look closer. The headline growth figure for Q2 is 50.4%, and I’d treat that one with some care — it’s inflated by one-time investment gains at Alphabet and Amazon. Take those two out and earnings still grew 32%. Ten of eleven sectors grew, and this makes the seventh consecutive quarter of double-digit earnings growth for the index. Looking forward, analysts are calling for another 27% in Q3 and 25% in Q4. This isn’t one good quarter that happened to land well — it’s a trend with some runway behind it.
2 The Market Made New Highs and Got Cheaper
This is the part I find most encouraging. The forward price-to-earnings ratio on the S&P 500 is 20.0 today, down from 20.4 on June 30 — even though the index itself is higher. Earnings simply grew faster than prices did. For context, that 20.0 sits just a hair above the five-year average of 19.9. Setting new records without stretching the valuation is a healthier way to make new highs, and it’s the version I’d rather see.
3 Participation Is Widening
For much of this bull market the complaint has been that only a handful of names were doing the work. July quietly argued the opposite: the average stock rose while the index fell, and financials and energy took the leadership baton from technology. Last week’s breakout carried large, mid, and small caps together. Add in the easing of Middle East tensions and lower oil prices, and you have a rally resting on more legs than it had a year ago.
2 Reasons to Be Cautious
Now let me put on my skeptic’s hat for a moment. Here are the two things I’m watching most closely in the back half of this year.
1 The Fed Is Debating a Hike, Not a Cut
This is the one that has changed most since my last letter. The Fed held at 3.50%–3.75% on July 29, but with three dissents — a divided committee. Long rates have been climbing on their own: the 30-year Treasury touched about 5.27%, its highest since 2007. Friday’s jobs report showed the economy lost 23,000 jobs in July with 103,000 of prior gains revised away, which pushed September hike odds down from 57% to 44%. That’s still close to a coin flip, and next week’s inflation reading likely settles it. Higher long rates pressure exactly the growth names that carry the most index weight.
2 Concentration Cuts Both Ways
I listed broadening participation as a reason to be bullish, and I do believe it — but I don’t want to oversell it. Technology still carries roughly 36% of the S&P 500’s weight. July showed what that means in practice: nearly six in ten stocks rose and the index still finished lower, because one industry group fell 22% in a single month. Better breadth underneath doesn’t fully offset the largest holdings moving the other way. It’s worth remembering that an S&P 500 index fund carries that concentration too.
“Two flat months, and then a record in four sessions. That’s the whole argument in miniature. Nobody called that week in advance — the investors who caught it were simply the ones who were still invested when it came.”
— Michael Vodicka, Vodicka Group
What to Expect
My working expectation for the next six to eight weeks is more of what we just had: a market that grinds, rotates, and doesn’t reward impatience. Inflation data next week and the September Fed meeting are the two dates that matter most in the near term. If we get a pullback in that window, I’d treat it as seasonal rather than structural unless the earnings picture changes — and right now the earnings picture is the strongest it’s been in five years.
The big picture hasn’t changed. Corporate profits are growing faster than stock prices, participation is widening, and the calendar improves meaningfully once the midterms are behind us. I’m not making significant changes to client portfolios heading into the fall. This remains a market to stay invested in, not to time.
Related Reading from Vodicka Group:
→ S&P 500 Q1 2026 Update: Through the Storm, Into Clear Skies
→ S&P 500 March 2026 Update: Staying the Course
→ Backdoor Roth IRA Explained: How It Works in 2026
→ Schedule a Free Portfolio Review
As always, if my outlook changes, my clients and readers will be the first to know. I’ll be back with another update soon — have a great week!
Until next time,
Michael Vodicka
Founder & Lead Advisor · Vodicka Group
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading. All figures cited reflect market and index performance only and are not representative of any individual client’s results.
