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

Highlights for this week include:

• Weekly jobless claims remain consistent with a healthy labor market.
• The Empire and Philly Fed regional business surveys provide an early look at April’s economic
  conditions and remain consistent with further economic growth.
• Earnings season is off to another positive start, and healthy first-quarter economic indicators suggest
  solid corporate profitability, which provides the key support for stocks.
• Also included below are key talking points as the Iranian conflict continues to unfold.

Earnings Season Off to A Positive Start with Banks Citing a Resilient Consumer

Earnings season kicked off this week with the major banks generally reporting better than expected results. The banks provide important insight into the health of consumers, businesses, and the overall economy. Comments from their earnings calls cited a constructive macro environment, healthy businesses, and a resilient consumer that’s so far weathering the energy shock well, despite the Iran war presenting macro uncertainty.

With 7% of the S&P 500 market capitalization reported so far, expectations are for earnings to grow at a
healthy 14% rate in the first quarter. The broad technology sector is once again expected to lead with
earnings growth estimated at 31%. Materials estimated at 22% and financials at 20% are also expected to outgrow the broader market. The first quarter’s economic data was consistent with a healthy economy, which should once again translate into better-than-expected earnings growth.

We continue to examine the incoming economic readings for impacts from the Iranian conflict. So far, the readings remain consistent with a resilient economy. Initial jobless claims, a timely and accurate measure of labor market health, remain near historic lows of around 200,000.

Regional Federal Reserve (Fed) surveys have strengthened in April, even amid the heightened uncertainty. The just released Philly Fed report followed a very robust Empire survey. Philly new orders were the best since late 2021, when we were still feeling the effects of the massive Covid-era fiscal spending. While it’s early, these 2 regional Fed surveys suggest healthy overall economic conditions for April.

The IMF’s World Economic Outlook was just released, showing a downward revision of 0.2% to global
economic growth this year to a 3.1% y/y rate. The report indicated the global outlook was tracking an upward revision of 0.1% before the war, implying a downgrade due to higher oil prices of just 0.3%. This view is based on a relatively benign outcome for the conflict. While below the 2000-2019 3.7% average, this still reflects a relatively healthy outlook. The energy shock is obviously the biggest risk for the global economy.

The IMF says that every 10% increase in energy prices — if sustained for a year — would decrease global growth by 0.1-0.2% and raise global inflation by 0.4%.

Key Talking Points for The Impact of The Iranian Conflict on The Economy and Markets

1) Uncertainty remains high around how events will unfold, and the impact on the economy will depend
on the length of the disruption to energy flow through the Strait of Hormuz and the extent of
damage to energy infrastructure. The longer traffic is halted, and the more damage is done to
infrastructure, the higher energy prices will climb, and the more harm that will occur to the economy
and stocks.

2) The direct impact of modestly higher oil prices on economic growth and inflation should be limited.
U.S. benchmark crude oil prices have jumped from $65 per barrel before the conflict and stand at $93
per barrel as of this writing. A rough rule of thumb is that a sustained $10 per barrel increase in oil
would reduce 2026 economic growth by about 0.10%. The consensus is currently calling for 2.2%
economic growth in 2026, which suggests the economy can absorb the current spike in oil prices.

3) The major risk to stock prices is a sustained period of severe oil disruption and price spikes that
weigh on economic growth. A sustained increase in oil prices and uncertainty would also threaten
equity valuations, corporate confidence, and the current rebound in industrial activity that has
contributed to recent rallies in many “old economy” cyclical stocks.

4) The U.S. economy was healthy entering this conflict, and the current economic readings suggest it
remains so. Importantly, the U.S. was a major oil importer during previous oil price spikes that
pushed the economy into recession. Today, the U.S. is energy independent and a net exporter of
energy and is a much more balanced economy as a result of the shale oil and gas revolution. While
high oil prices are still a tax on the consumer, many industries benefit from U.S. oil and gas
production, while significant wealth that was transferred to other oil-producing nations now stays in
the U.S.

5) In addition, the energy intensity of the U.S. economy is much lower today. The amount of oil
necessary to produce one unit of U.S. economic output has fallen by about 70% since 1980.

6) Since 1980, the average year has had a 14% intra-year decline in the S&P 500 stock index while
ultimately producing a positive return of 10% for the full year. 2025 highlights this with April’s 19%
selloff, while the full-year return came in at 16%.

7) We further note that stocks remain a key element for portfolio growth and maintaining long-term
purchasing power, with stocks outperforming other major asset classes and inflation over long
periods of time.

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