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

Highlights for this week include: 

• The first look at the May business surveys from S&P Global remains consistent with a growing economy, albeit at a slower pace than earlier in the year. 
• April new orders for durable goods came in much better than expected, with underlying activity remaining healthy. 
• First-quarter earnings remain exceptionally strong, led by leading technology firms. 
• Major stock indexes remain near all-time highs, supported by resilient economic readings and robust 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 conflict. 

May Business Surveys Consistent with Further Growth but Higher Inflation 

U.S. business activity continued to grow in May but at a reduced rate compared to earlier in the year, according to S&P Global’s business surveys. Growth over the past three months since the outbreak of war in the Middle East has been the weakest seen since the start of 2024. An improved performance in manufacturing was countered by a sluggish service sector. However, factory growth was again in part supported by temporary stock building, and both sectors reported that order book growth had been somewhat subdued by the ongoing war in the Middle East, most notably in terms of export sales. Inflation remains a concern. Input costs jumped in May at the steepest rate since late 2022 on the back of rising war- related supply constraints and steep energy cost increases. 

Driven by domestic energy production and Al capital spending, activity in the U.S. has remained resilient since the start of the U.S.-Iran war. By contrast, activity in all other major developed economies has slowed much more, with business surveys now signaling contraction in the eurozone, UK, and Australia – though Japan is holding up better. 

Meanwhile, new orders for durable goods showed strength once again in April, rising 7.9% and continuing a trend that started in mid-2025. The headline came in well above consensus expectations, while underlying activity remained healthy. 

Initial Jobless Claims Remain Historically Low 

Initial jobless claims, a timely and accurate measure of labor market health, remain historically low around 210,000 on a trend basis. Job growth has slowed, but this is being influenced by the shift to roughly net-zero immigration over the past year or so. 

Consumer Confidence Edged Lower in May 

Consumer confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified, according to The Conference Board. Consumer appraisals of current business conditions and the current labor market were slightly less positive compared to last month. This was somewhat offset by modest improvements in consumers’ expectations for business conditions and the labor market six months from now. Meanwhile, income expectations eased in May, as those anticipating less income rose. 

First Quarter Earnings Continue to Impressively Come in Better Than Expected 

With 94% of S&P 500 companies having reported earnings, first-quarter (Q1) 2026 results have been exceptionally strong, with the earnings growth rate for the S&P 500 now coming in at 28.4%. This marks the highest earnings growth rate reported by the index since Q4 2021 (32.0%). On March 31, the estimated (year- over-year) earnings growth rate for the S&P 500 for Q1 2026 was 13.0%. 

Mega-cap technology firms continue to deliver exceptional earnings growth, with the six largest technology firms posting 63% earnings growth in the first quarter compared to the rest of the market at 18%. 

Market Dynamics Remain Positive 

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

Corporate bonds continue to signal a low probability of future defaults – a sign of a robust economy. Economically sensitive sectors and speculative growth stocks are performing well, while defensive sectors are underperforming. International markets remain in an uptrend, which provides another signal of a sound market. 

Higher oil prices and Treasury bond yields remain a concern as the Iranian conflict drags on, but 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. 

Disclaimer 

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