The S&P 500 is on track for another positive inflation-adjusted return in 2026 after gaining roughly 12% to 13% through late August, although the record-setting rally is becoming more dependent on corporate earnings. Consumer prices rose 3.4% over the year through July and the Federal Reserve’s preferred PCE measure increased 3.7%, leaving stocks with a substantial real gain. Second-quarter earnings growth reached its strongest pace since the second quarter of 2021, with Reuters estimating year-over-year growth of about 33.5%. FactSet said 86% of companies reporting through Aug. 7 exceeded earnings-per-share estimates, versus five- and 10-year averages of 78% and 76%. Analysts expect third-quarter earnings to grow roughly 27% to 28% and full-year profits about 30%. Artificial-intelligence investment has supported technology and semiconductor earnings, including Nvidia, but higher borrowing costs pose a growing challenge. The 30-year Treasury yield recently exceeded 5.2% and the 10-year yield hovered around 4.7%, raising the discount rate applied to future profits. The S&P 500 reached 7,798.99 on Aug. 13 before a bond selloff pressured stocks, while markets increased expectations for a September rate hike after Chair Kevin Warsh said inflation remained too high. Historically, the index has outpaced inflation in 16 of the past 20 calendar years, but the current advantage depends increasingly on profits keeping pace with inflation and tighter financial conditions.