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

Highlights for this week include: 

• July’s business surveys remain consistent with a healthy U.S. and global economy. 
• Labor market indicators also remain consistent with a resilient market. 
• Profit growth provides fundamental support for stocks, and the second quarter earnings season continues to show positive results. 
• The S&P 500 broke out to an all-time high this week and we are encouraged by the performance of economically sensitive sectors including Financials, Industrials, and small-cap stocks. 
• 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. 

July Business Surveys Remain Consistent with a Healthy Economy 

We received the July business surveys from the Institute for Supply Management (ISM) this week, and the results remain encouraging. The ISM services index edged higher, consistent with healthy economic growth. Overall growth was broad in July, with thirteen of the eighteen major service industries reporting expansion, while four reported contractions, and one reported no change. The ISM stated that the services economy continues to be resilient. The World Cup was cited as helping boost business while inflationary pressures remained a concern. 

Meanwhile, the ISM manufacturing survey showed activity accelerated to the fastest pace in more than four years. Growth was broad-based, with fifteen out of the eighteen major manufacturing industries reporting growth in July, with only one industry reporting contraction (Chemical Products). All of the major measures of activity increased for the month. Al-related capital investment, the reshoring of production, and increased defense procurement are providing meaningful support to the manufacturing sector. 

J.P. Morgan, in association with S&P Global and the ISM, produces a global business survey which includes over 40 economic regions and covers both services and manufacturing. Encouragingly, the July survey results remained consistent with above-trend economic growth. Forward-looking indicators improved, with the new business and future output indexes both reaching five-month highs. The survey also showed lower inflationary pressures. 

Healthy readings from the U.S. and global surveys, and both service and manufacturing sectors, provide a positive signal for economic growth and corporate profitability. 

Healthy Labor Market Indicators 

The Job Opening and Labor Turnover Survey (JOLTS) report showed job openings were little changed at 7.4 million in June, consistent with a steady-to-strengthening labor market. Initial jobless claims, an 

accurate and timely indicator of the labor market, remain at historically low levels, consistent with a healthy labor market and economy. 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. 

Earnings Season Showing Positive Results 

The second quarter (Q2) earnings season continues to show positive results after a strong first quarter. Over 73% of the S&P 500’s market capitalization has reported so far, and expectations are now for Q2 earnings to grow an impressive 32%. Technology (Al beneficiaries) and Energy are leading earnings growth. Earnings are beating estimates by 7% on aggregate so far, with 78% of companies topping projections. 

Remaining Positive on the Market 

The S&P 500 broke out to an all-time high this week, and we are encouraged by the performance of economically sensitive sectors including Financials, Industrials, and small-cap stocks. In another confirming signal, international stocks are also in a positive uptrend. 

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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