Eric Kearney | President
The stock market has reached new all-time highs after going through several uncertain periods this year. This is good news for investors, and it is worth noting that many different parts of the market have helped drive this rise, including sectors such as Energy, Information Technology, and Industrials. At the same time, interest rates remain near their highest levels in many years, which has pushed bond yields (the income a bond pays relative to its price) to levels not seen in a long time. Even so, investors should always be ready for periods of market swings, as the past few years have shown these can happen at any time.
For investors focused on the long term, rising stock prices and higher bond yields together create an environment where keeping a balanced mix of investments is important. At first glance, it might seem odd that stocks are hitting records while interest rates stay high, since high rates can sometimes slow economic growth. However, when both stocks and bonds are being supported by positive trends, a well-balanced portfolio can help investors work toward their financial goals. So how should investors think about today’s market, with prices near record levels?
Stocks and bonds each support a portfolio, but in different ways
The S&P 500, Nasdaq, and the Dow Jones Industrial Average have all produced double-digit total returns so far this year.1 Several clear themes are shaping which parts of the market have contributed most. Artificial intelligence continues to be a major driver for technology stocks, and the energy sector has been lifted by higher oil prices. These are the trends most often discussed in the news, and they help explain why major market indexes have climbed to new highs.
Another key driver is that company profits, known as corporate earnings, have grown at a remarkable pace, giving the rally a solid foundation. Over the long run, a growing economy tends to boost company profits, which in turn pushes stock prices higher. Notably, profits have risen significantly in recent years even though overall economic growth has been modest. Current forecasts suggest that the S&P 500 could reach an earnings-per-share figure of $347 this year, which would represent an annual growth rate of over 30%. If achieved, this would be well above the historical average of around 8%.2
The Federal Reserve (often called “the Fed”) and its interest rate decisions have also played an important role in the recent market rally. In the short term, markets can be very sensitive to what investors expect the Fed to do next. This is because interest rates affect how investors calculate what a stock is worth today based on the money it is expected to generate in the future. Earlier this year, rising oil prices led many to expect the Fed to raise rates further to keep inflation under control. However, with the job market cooling and inflation holding steady, those expectations have faded, with only one small rate increase priced in by next January.
Understanding how rising rates affect stocks and bonds depends on why rates are rising in the first place. When rates rise because of inflation worries, it can hurt both stocks and bonds, as happened in 2022 when the Fed raised rates aggressively. But when rates rise because the economy is expected to grow more strongly, it pushes up what are known as “real rates,” which are interest rates after adjusting for inflation.3 Higher real rates can support stock prices through stronger company earnings, while also giving bond investors more attractive income.
This helps explain why stocks have kept climbing even as rates remain elevated. The chart above shows how stock and bond returns have related to each other over the past few decades, including long stretches where both did well during periods of economic growth. The lesson for investors is not to try to predict where markets or rates are headed, but to hold a mix of investments that can benefit from the strengths of each.
Waiting for a market dip before investing often works against you
With markets near all-time highs, many investors naturally wonder whether they should adjust their portfolios or hold off before putting money to work. History shows that because the economy and markets tend to grow over time, trying to time these moves can work against investors. The cost of sitting on the sidelines is often greater than simply staying invested.
The chart above illustrates why waiting for the perfect moment to invest often does not pay off. For instance, an investor waiting for a 5% drop before putting money in would have waited an average of 291 days. During that time, the market would have already gained nearly 14%. So, even though drops of 5% or more do happen from time to time, and every situation is different, the fact that markets tend to rise over time means the next dip is often at a higher level than the last. In many cases, the investor who waited would have been better off simply staying invested from the beginning.
This does not mean markets always go up in a straight line, or that drops never happen. Rather, it reinforces the idea that new all-time highs are a normal part of a rising market, and that holding a well-built portfolio is often the best path to reaching long-term goals.
There are also strategies for those who need to improve how their money is spread across different investments. For example, someone who needs to invest a large sum of money at current prices might consider dollar-cost averaging, which means investing smaller amounts at regular intervals rather than all at once. Spreading a portfolio across different sectors, styles, and parts of the world can also help reduce exposure to areas where prices may be high, while still allowing investors to benefit from potential growth.
Bond yields are a key driver of long-term returns from fixed income investments
While stocks have done well this year, bonds (which are loans made to governments or companies in exchange for regular interest payments) have been mostly flat because of rising interest rates. Bond prices move in the opposite direction of yields, meaning that when rates go up, existing bonds become less valuable. However, rising rates also mean that investors can now put money into bonds that pay more income, or adjust their portfolios to take advantage of higher yields, if that fits their financial plans.
The chart above shows that the yield available when you buy a bond is an important factor in how much it will return over time. Right now, bond yields have rarely been this appealing over the past two decades. Investment grade corporate bonds (bonds issued by financially strong companies) and Treasury securities (bonds issued by the U.S. government) are now offering income levels that were very hard to find in the years after the global financial crisis, when interest rates were kept near zero.4 For investors who rely on their portfolios for regular income, or who simply want to balance out the risk of owning stocks, this creates better opportunities in bonds than have existed for many years.
So, while higher rates can push down bond prices, they also mean bonds can play a meaningful role in a portfolio. When you consider this alongside the stock market trends that have helped investors this year, these two types of investments together can support the long-term financial goals of patient investors.
The bottom line? Stocks have benefited from growth trends while bond yields are historically attractive, creating opportunities across both asset classes. For long-term investors, maintaining a balanced portfolio is the best way to benefit from this environment while staying focused on financial goals.
References
- Standard & Poor’s and Nasdaq as of August 14, 2026
- Clearnomics research using Standard & Poor’s and LSEG data, as of August 14, 2026
- https://home.treasury.gov/resource-center/data-chart-center/interest-rates
- Clearnomics research and Bloomberg data, as of August 14, 2026
Index Descriptions
S&P 500
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Dow Jones
The Dow Jones Industrial Average consists of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
NASDAQ
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
Bloomberg US Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
Copyright (c) 2026 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
