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

Highlights for this week include:

• The April business surveys are consistent with a resilient economy, despite showing effects of the Iranian conflict.
• Labor market indicators are consistent with a healthy labor market and business confidence, and further economic growth.
• First-quarter earnings have been exceptionally strong, led by leading technology firms.
• Major stock indexes remain at or near all-time highs, supported by resilient economic readings and corporate profitability that continue to exceed expectations.
• While the Iranian conflict remains a major concern, the positive performance of stocks and corporate bonds suggests the market is focused on economic fundamentals and profitability and is looking past the Iranian conflict.

Business Surveys Solidly in Expansion Territory Consistent with Further Economic Growth

Despite the ongoing Iranian conflict, the incoming economic readings remain consistent with a resilient U.S. economy. At the beginning of every month, we receive business surveys from ISM that provide important insight into private sector economic activity for the manufacturing and service sectors. These surveys remain consistent with an economy that continues to grow at a solid pace, despite feeling inflationary effects from the Iranian conflict.

The ISM manufacturing survey showed activity continued to expand in April, matching the pace from March, which is the fastest since 2022. The expansion comes despite numerous headwinds, such as elevated prices and longer supplier delivery times due to the closure of the Strait of Hormuz. This is now the fourth straight month of expansion in the manufacturing survey, signaling solid underlying growth in the sector, after several years of sluggish activity. Growth remained broad in April, with thirteen out of the eighteen major manufacturing categories reporting expansion.

The ISM survey of the larger service sector showed activity expanding once again in April, although at a slightly slower pace than in recent months. However, growth broadened in April with fourteen out of the
eighteen major service industries reporting growth (compared to thirteen in March). The major measures of activity were mostly higher. The slowdown was largely due to a retreat in new orders as elevated input prices stemming from the conflict in Iran have encouraged service companies to suspend purchases until stability returns.

Job Market Indicators Are Consistent with A Healthy Labor Market

We received several indicators this week on the health of the labor market. Encouragingly, they remain
consistent with a healthy labor market. After falling for several years from the overheated 12 million peak in March job openings were largely unchanged from February and have been holding around 6.9 million
for about a year, consistent with a stable labor market.

The payroll processor ADP also released a monthly report showing a 109,000 increase in US private-sector jobs in April. That’s the largest increase since January 2025 and well ahead of the 12-month trailing average of 36,000. Initial jobless claims, a timely and accurate measure of labor market health, impressively remain at historical lows and in a declining trend. These readings are consistent with a solid labor market and business confidence, which are being supported by robust profit growth.

First Quarter Earnings Continue to Impressively Come in Better Than Expected

With 63% of S&P 500 companies having reported earnings, first-quarter 2026 results have been exceptionally strong. While the aggregate S&P 500 earnings growth rate of 25% is distorted by idiosyncratic one-time benefits, earnings growth is tracking at a 16% pace excluding those items, and companies have reported the lowest frequency of earnings misses in 25 years, outside of the COVID reopening period. Mega-cap technology firms continue to deliver exceptional earnings growth.

Despite elevated energy prices and geopolitical uncertainty, corporate guidance and analyst estimate revisions have remained strong so far this quarter. Analysts have raised estimates for S&P 500 earnings in the remainder of 2026 by 1% since the start of the reporting season, with upward revisions to Energy and Technology offsetting downgrades to Consumer and Materials firms.

Market Dynamics Remain Positive

The S&P 500 and other important indexes remain at or near all-time highs. Stocks are being supported by resilient economic readings and corporate profitability that is exceeding expectations, as discussed above.

Corporate bonds are also signaling a low probability of future defaults – a sign of a healthy economy. Economically sensitive sectors and speculative growth stocks are also performing well, while defensive sectors are underperforming. While higher oil prices and Treasury bond yields remain a concern as the Iranian conflict drags on, the positive performance of stocks and corporate bonds suggests the market is focused on positive economic fundamentals and profitability and is looking past the Iranian conflict.

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