Bonds, the Fed, and Earnings Season

Bonds are generating income again, the Fed is rethinking its playbook, and AI is reshaping earnings growth. LPL Research breaks down what it means for markets.

Last Edited by: LPL Research

Last Updated: July 16, 2026

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IN THIS ARTICLE:

Investors are sorting through three big stories right now: interest rates are staying higher than many expected, the Federal Reserve (Fed) is taking a fresh look at how it makes decisions, and companies are about to report another round of earnings results. Together, these trends can help shape where markets go next.

Bonds Still Offer a Meaningful Source of Income

Many investors started the year expecting inflation to cool and interest rates to move lower. That has not happened yet. Inflation remains stubborn in some areas of the economy, especially services, while higher energy prices and geopolitical tensions have added more uncertainty. As a result, the Fed will likely remain on a prolonged rate-cutting pause, leaving Treasury yields rangebound.

However, there is a silver lining for bond investors. Today's bond yields are still relatively attractive compared with historical averages. That means investors can earn meaningful income from the interest payments bonds provide, even if bond prices do not rise much.

For investors looking for stability and income, bonds remain an important part of a diversified portfolio. Rather than waiting for rates to fall, many investors may benefit simply from collecting the income their bonds generate.

The Federal Reserve May Be Entering a New Chapter

The Fed recently created several task forces to examine how it makes policy decisions, uses economic data, and communicates with the public. The review also includes studying the impact of technology and artificial intelligence (AI) on jobs, productivity, and inflation.

Why does this matter? The economy looks very different today than it did even a decade ago and technology is changing how people work and how businesses operate. The Fed wants to make sure it is using the strongest analysis and the best data available when making decisions that affect interest rates and the broader economy.

Investors should not expect major changes overnight. However, the review suggests that future Fed decisions may rely more heavily on real-time data and a deeper understanding of how technological advances affect economic growth.

Three Things to Watch During Earnings Season

As companies report their latest results, investors should pay attention to more than just whether firms beat earnings season estimates.

First, watch whether AI continues to drive earnings growth. Large technology companies have played a major role in recent earnings gains, and AI-related spending remains a key contributor to profits.

Second, pay attention to company profitability. Many businesses are finding ways to operate more efficiently, and some are beginning to benefit from productivity improvements tied to AI and automation. Higher efficiency can help companies grow profits even when costs rise.

Third, watch whether earnings growth spreads beyond the largest technology companies. A broader group of companies contributing to profit growth is generally a positive sign for the overall market and economy.

What This Means for You

The current environment is not as simple as some investors expected it would be at the start of the year. Inflation remains elevated, interest rates may stay higher for longer, and markets continue to react to economic and geopolitical developments.

Even so, there are reasons for optimism. Bonds continue to offer attractive income opportunities, companies are still generating solid earnings growth, and advances in technology are supporting productivity and business investment. Keeping an eye on these trends can help investors stay informed and focused on their long-term goals.

 

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BONDS, THE FED, AND EARNINGS SEASON FAQs

Why are bonds getting more attention right now?

Bonds are attracting attention because they are once again offering investors meaningful income. When you buy a bond, you receive regular interest payments, and those payments are currently higher than they have been for much of the last decade. This means investors do not necessarily need bond prices to rise in order to earn a reasonable return.

 

In today's environment, the Fed is expected to move slowly on interest rate cuts due in part to inflation remaining above its long-term target. That increases the likelihood that bond yields stay relatively elevated. For investors seeking income, stability, or diversification from stocks, this creates a more attractive backdrop than the low-rate environment that existed for many years. 

The Fed is reviewing its policy framework because the economy has changed significantly over the last two decades. Advances in technology, changes in the labor market, the growing role of AI, and the availability of real-time economic data all create new challenges and opportunities for policymakers.

 

To address these changes, the Fed has formed task forces focused on key areas such as inflation, economic data, communications, productivity, jobs, and balance sheet policy. The goal is to evaluate whether the tools and methods the Fed uses today are still the best fit for today's economy.

 

For investors, the review matters because it could influence how the Fed approaches future interest rate decisions, how it communicates with markets, and how it responds to economic slowdowns or periods of higher inflation. While any changes are likely to take time, they could shape monetary policy for years to come. 

Investors should focus on whether companies are continuing to grow profits and, just as importantly, where that growth is coming from. Over the last several quarters, large technology companies and spending related to AI have been major drivers of earnings growth.

 

Another important factor is profitability. Investors should watch whether companies can maintain or improve their profit margins despite ongoing cost pressures. Businesses that become more productive or operate more efficiently often have a greater ability to grow earnings over time.

 

Finally, investors should look for signs that earnings growth is spreading beyond the largest technology firms. When a broader range of industries and companies are contributing to profit growth, it can signal a healthier market and a stronger economic foundation overall.

Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. ​

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. ​

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. ​

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. ​

All investing involves risk, including possible loss of principal. ​

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. ​

The Standard & Poor’s 500 Index (S&P500) 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.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio. ​

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. ​

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.​

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. Indexes are unmanaged and cannot be invested in directly.

The MSCI US Broad Market Index captures broad U.S. equity coverage. The index includes 3,204 constituents across large, mid, small and micro capitalizations, about 99% of the U.S. equity universe. Indexes are unmanaged and cannot be invested in directly.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Private credit carries certain risks — illiquidity, opacity, borrower concentration, and bespoke structures — that distinguish it from corporate bonds and bank loans and complicate its evaluation and oversight.

All index data from FactSet or Bloomberg.

This research material has been prepared by LPL Financial LLC.

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