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

Highlights for this week include:

• S&P Global’s preliminary April business survey came in better-than-expected and remains consistent with a growing economy, despite showing effects of the Iranian conflict.
• Weekly jobless claims remain near historic lows, with the most recent reading the lowest since 1969, consistent with a healthy labor market and business confidence, and further economic growth.
• First-quarter earnings continue to well exceed expectations, led by leading technology firms. Earnings growth expectations are now up to an impressive 19.7% rate for the first quarter.
• Major stock indexes remain at or near all-time highs, supported by economic readings that historically have been consistent with further growth and corporate profitability that continue to exceed expectations.
• 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 economic fundamentals and profitability and is looking past the Iranian conflict.

Early Look at April’s Private Sector Economic Activity Consistent with Further Economic Growth

We continue to follow timely indicators for the effects of the Iranian conflict on the economy (and ultimately corporate profitability and stock prices). We are now getting key indicators for the second month of the conflict. These readings remain consistent with a growing economy.

S&P Global releases a preliminary survey (which includes about 85% of final responses) late in each month that provides one of the earliest readings on the health of the private-sector economy for that month. Last week, they provided their preliminary April survey. It came in better than expected and consistent with further economic growth, despite the influence of the conflict.

The manufacturing reading hit a 4-year high, fueled by the largest influx of new orders since May 2022. While manufacturing had been improving prior to the conflict, it is seeing a further boost from stock building amid concerns over supply availability and price hikes due to the war.

While the larger service sector survey came in at a better-than-expected 2-month high, it remains consistent with subdued economic activity. The survey cited orders for services ranging from travel and tourism to financial products rose only slightly as the war caused hesitancy for spending among both households and businesses. The survey also noted higher prices for a variety of goods and services in addition to energy.

Jobless Claims Remain in a Downtrend with the Most Recent Print the Lowest Since 1969

Initial jobless claims, a timely and accurate measure of labor market health, impressively remain at historical lows and in a declining trend, with the most recent print the lowest since 1969. This is consistent with a healthy labor market and business confidence, which are being supported by healthy profit growth.

First Quarter Earnings Continue to Impressively Come in Better Than Expected

Earnings continue to exceed expectations, led by mega-cap technology. With 53% of the S&P 500 market capitalization reported, earnings growth expectations are now up to an impressive 19.7% rate for the first quarter. Earnings are beating estimates by 12.0% on aggregate so far, with 76% of companies topping projections to date. Earnings are on pace for 21.3% growth, assuming the historical trend of estimate revisions through the end of the reporting season.

The broad technology sector is once again expected to lead with earnings growth estimated at 40.6%, led by an insatiable demand for AI products and services. Materials and financials are also expected to outgrow the broader market.

Market Dynamics Have Improved Considerably Through April

Stock market dynamics have improved considerably through April, with the S&P 500 and other important indexes at or near all-time highs. Stocks are being supported by still healthy 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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