Earnings Lift All Boats in August
Commentary:
August marked the fourth straight monthly advance for U.S. equities as a powerful earnings pulse broadened the rally beyond mega cap technology. All major indices finished higher, while a softer inflation print kept September rate cut odds elevated.
U.S. large-cap stocks continued their advance, but leadership finally broadened. The S&P 500 gained roughly 2% in August, its fourth consecutive monthly rise. More striking was the resurgence in small caps: the Russell 2000 soared 7%, its best month since late 2023 and more than triple the S&P’s return. Overseas, developed-market equities also participated; the MSCI EAFE Index posted a 4.26% total-return gain in U.S. dollars.
Bonds served as a steady anchor for returns as Treasury yields drifted lower on softer inflation prints, leaving the Bloomberg U.S. Aggregate Bond Index marginally positive for the month up 0.9%. Sector rotation favored cyclical groups such as Industrials, Financials and Energy, while equal-weight benchmarks outpaced market cap weighted indices for the first time this year, returning 2.72%. [1]
Profits were the key catalyst. Midway through earnings season, Nasdaq-100 companies reported year-on-year EPS growth of 27%, the fourth straight quarter above 20%. Even more eye-catching, Russell 2000 EPS surged nearly 69%, the highest quarter-over-quarter improvement since 2021. In our view, that breadth of earnings momentum, spanning both mega-cap innovators and leveraged domestic cyclicals, substantiates the “earnings-lift-all-boats” narrative that defined August’s rally. [2] [3]
Conclusion:
Our macro process, anchored by Hedgeye’s regime-based framework, remains forward-looking. The current model’s quarterly 3-2-1 Quad cadence suggests Quad 3 (growth slowing, inflation accelerating) now; Quad 2 (growth & inflation accelerating) in 4Q25; and Quad 1 (growth accelerating, inflation decelerating) by 1Q26. This 3-2-1 setup is often favorable for US equity returns.
Because regime shifts often usher in new market leaders, we used the August 1st volatility spike to realign portfolios with the projected 3-2-1 Quad path. In Satellite 1, we opened positions in QQQ (Technology), IWM (Small Caps), and XLF (Financials) that day, and later added MGK (Mega-Cap Growth) to reinforce exposure to durable earnings momentum. At the same time, we trimmed XLU (Utilities) and EWG (Germany), holdings that had previously been top performers but are less likely to shine under the forthcoming regime. These moves modestly increased portfolio beta while broadening sector and factor participation, positioning us to capture the next leg of US market momentum and expanding breadth.
Taken together, August’s broadening profit tide, a supportive 3-2-1 macro roadmap, and disciplined risk management give us confidence that our portfolios are well set for the cycle’s next chapter. We will stay agile, so that process, not headlines, continues to steer the course as we finish out the year.
Sources
1. https://marksgroup.com/august-2025-market-recap/
2. https://lipperalpha.refinitiv.com/2025/08/russell-2000-earnings-dashboard-25q2-aug-28-2025/
3. https://www.nasdaq.com/articles/nasdaq-100-index-q2-2025-preliminary-earnings-updates
Model Performance Update
Our Moderate Model Portfolio returned 2.45% during the month of August and has returned 9.21% YTD
Changes to the model portfolio in August
7/31/2025
- Added XLF (Financials) and IWM (Small Cap) to Satellite 1
- Added SIVR (Silver) to Satellite 3
8/1/2025
- Added QQQ (Nasdaq) to Satellite 1
- Increased exposure to IWM (Small Cap) and XLF (Financials) in Satellite 1
- Reduced CTA (Managed Futures) in Satellite 5
- Reduced Exposure to XLU (Utilities) and EWG (Germany) in Satellite 1
8/21/2025
- Added MGK (Mega Cap Growth) to Satellite 1
8/29/2025
- Removed EWG (Germany) from Satellite 1
- Added EWW (Mexico) to Satellite 1
- Increased exposure to MGK (Mega Cap Growth) in Satellite 1
August Performance with Benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above, please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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