MICHAEL J. HALLORAN, CFA | Equity Strategist of Janney Montgomery Scott
Wyncote Wealth Management Group

Highlights for this week include: 

• The NFIB Small Business Optimism Index rose above its 52-year average in July with healthy hiring and capital spending plans. It is also consistent with a resilient middle-income consumer. 
• While July’s employment report disappointed, important labor market indicators remain consistent with further job gains. 
• We are late into the second quarter of earnings season, which continues to show positive results. For the full year 2026, analysts are now predicting a (year-over-year) earnings growth of a positive 30.0%. 
• The S&P 500 and other important indexes are at or near all-time highs, and we are encouraged by the performance of economically sensitive sectors and asset classes. While acknowledging the risks posed by the fluid and uncertain Iranian conflict, we continue to expect stocks to be supported by further economic growth and robust profits. 

An Encouraging July Small Business Survey 

Small businesses are critically important to the U.S. economy. Consequently, we pay close attention to their major surveys. The NFIB Small Business Optimism Index rose above its 52-year average in July. The reading was the highest since August 2025, with eight of NFIB’s ten components improving. Hiring plans contributed most to the rise, alongside continued improvement in expected business conditions. Also, notable, hiring plans are at their highest level since October 2022. Twenty-five percent of small business owners plan to make capital outlays in the next six months, the highest reading since December 2024. 

The top reported issue was labor quality or availability. Twenty-seven percent of small business owners cited “labor quality or availability” as their single most important problem in July, well above the historical average of 12%. Thirty-six percent of small business owners reported job openings they could not fill, the highest reading since June 2025. 

NFIB headline optimism is a useful proxy for middle-income consumer conditions, and July’s positive reading suggests that consumer demand should remain resilient. 

Disappointing July Jobs Report but We Still See a Healthy Labor Market 

July’s payroll report came in well below expectations, with a decline of 23,000 jobs, the first drop since February. A key reason for the decline in payrolls in July was an unusual 50,000 drop in education workers employed by local governments, which suggests a seasonal adjustment issue that could reverse in the months ahead. Private sector job gains were consistent with the recent trend, up 30,000, with total private payroll employment now at a record high. 

A combination of strict immigration enforcement and an aging population suggests slow growth in jobs without a rise in unemployment, consistent with this past year’s data. Nonfarm payrolls are up an average of 26,000 per month in the past year even though the jobless rate has declined to 4.1% from 4.3%. And when the average is only 26,000 and considering the volatility of this monthly number, an occasional negative reading can be expected. Other reports on the labor market remain solid. 

The Conference Board released its Employment Trends Index on Monday, and it was noted to be consistent with continued resilience in the labor market, despite the ‘low-hire, low-fire’ backdrop. The NFIB survey discussed above showed hiring plans are at their highest level since October 2022. Initial jobless claims, an accurate and timely indicator of the labor market, remain at historically low levels, consistent with a healthy labor market. In addition, the July Challenger Report showed layoffs were down 27% from June and down 46% from July of last year, while hiring increased by 25% over last July. 

Inflation Remains Stubbornly Above the Federal Reserve’s 2.0% Target 

The July CPI report came in as expected, with overall consumer prices up 3.4% over the past year compared with 2.7% for the twelve months ending July 2025. Much of that acceleration reflects the spike in energy prices following the Iran War. By contrast, core prices, which exclude volatile food and energy, have increased 2.5% in the past year, down from a 3.1% gain in the twelve months ending July 2025. However, inflation remains above the Fed’s 2.0% target, and this report should do little to change the Fed’s current “hawkish” stance, adding to the importance of upcoming inflation readings. 

Earnings Season Showing Positive Results 

The second quarter (Q2) earnings season continues to show positive results following a strong first quarter. Over 82% of the S&P 500’s market capitalization has been reported so far, and expectations are now for Q2 earnings to grow an impressive 33%. Technology (Al beneficiaries) and Energy are leading earnings growth. Earnings are beating estimates by 7% on aggregate so far, with 77% of companies topping projections. 

Remaining Positive on the Market 

The S&P 500 and other important indexes are at or near all-time highs, and we are encouraged by the performance of economically sensitive sectors and asset classes. While acknowledging the Iranian conflict continues to pose a risk for the economy and stocks, we remain positive on the stock market. We maintain our expectation for stocks to be supported by further economic growth and robust profits. 

Disclaimer 

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