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

Highlights for this week include: 

• The first look at July’s business surveys showed U.S. business activity accelerated at the start of the third quarter, signaling the fastest growth since last November. 
• The Federal Reserve left interest rates unchanged and noted that economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. 
• Profit growth provides the fundamental support for stocks, and the second quarter earnings season is showing positive results after strong first quarter results. Given the ongoing massive Al buildout and healthy economic readings, we expect further positive news from earnings season. 
• 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. 

Early Look at July Business Surveys Remains Consistent with a Healthy Economy 

Late in the month, S&P Global provides preliminary business survey results that include about 85% of respondents and provides an early glimpse of that month’s economic activity. Encouragingly, the preliminary July data showed U.S. business activity accelerated at the start of the third quarter, signaling the fastest growth since last November and a further improvement from the near-stagnation seen in March. 

July’s faster expansion was led by the service sector, where business activity growth hit an eight-month high amid stronger new orders. While manufacturing growth softened, as some of the stock building seen in prior months showed signs of fading, it remains at an elevated level. The employment index was encouraging, with both manufacturing and services rebounding into expansion territory. 

According to S&P Global, this survey data is broadly consistent with the economy growing at an annualized 2.0% against a 1.2% pace signaled for the second quarter (the first estimate of second quarter economic growth from the Commerce Department just came in at 1.5%). 

Federal Reserve Remains on Hold with Interest Rates 

The Federal Reserve (Fed) met this week and decided to maintain the target range for the federal funds rate (short-term interest rates) at 3.50% to 3.75%, in support of their dual mandate of stable prices and full employment. 

They noted that economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. They further noted that productivity growth and capital investment are strong, job gains have kept pace with the workforce, and the unemployment rate has changed little. 

While inflation remains elevated relative to their 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy, they reiterated that they will deliver price stability. 

Jobless Claims Remain at Historically Low Levels, Consistent with a Healthy Labor Market 

Initial jobless claims are an actual count of the number of people signing up for benefits and are not revised significantly. Consequently, claims are considered an accurate and timely indicator of the labor market and economy. They remain at historically low levels and have been trending lower all year – consistent with a healthy labor market and economy. 

Earnings Season Showing Positive Results 

The second quarter (Q2) of the 2026 earnings season is showing positive results after a strong first quarter. Over 48% of the S&P 500’s market capitalization has reported so far, and expectations are now for Q2 earnings to grow an impressive 27%. Technology (Al beneficiaries) and Energy are leading earnings growth. Earnings are beating estimates by 7% on aggregate so far, with 77% of companies topping projections. 

Remaining Positive on the Market 

While acknowledging the Iranian conflict continues to pose a risk for the economy and stocks, we remain positive on the stock market. The market-capitalization weighted S&P 500 index (strongly influenced by major Al-related firms) is in consolidation mode with weakness in semiconductors and other Al-related names. The equal-weighted S&P 500 index continues to show leadership. We maintain our expectation for stocks to be supported by further economic growth and robust profits. 

Disclaimer 

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