Highlights for this week include:

• April’s employment report confirmed other labor market indicators, which are consistent with a healthy labor market.
• High energy prices coupled with sticky core inflation have overall inflation well above the Federal Reserve’s 2.0% target, with the market now pricing in no interest rate cuts for this year.
• First-quarter earnings remain exceptionally strong, led by leading technology firms.
• Major stock indexes are at or 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.

April Employment Report Consistent with a Resilient Labor Market

Heading into last Friday’s labor market report, we already received several labor market readings, including ADP’s April private-sector job report, the JOLTS job openings, and weekly jobless claims, all consistent with a healthy labor market. So, it wasn’t a surprise when the April labor market report came in better-thanexpected. April’s payrolls rose a solid 115,000, much better than the expected 65,000, with the unemployment rate holding steady at 4.3%.

While hours worked rose in April, average hourly earnings softened to 0.2% m/m or 3.6% versus a year ago. Altogether, aggregate earnings growth remains solid at 4.1% on a six-month annualized basis. Record tax refunds are also a source of spending power. This income growth is an important offset to the current energy-induced inflation spike for real purchasing power and consumer spending.

April’s Consumer Inflation Report Shows Impact of Higher Oil Prices

The Consumer Price Index (CPI) rose 0.6% in April and is up 3.8% from a year ago. The core CPI, which excludes food and energy, increased 0.4% in April and is up 2.8% versus a year ago. Energy prices accounted for 40% of the overall monthly increase in headline inflation, but there are few signs so far that higher energy prices are seeping into core inflation. Energy feeding into higher core inflation will likely depend on the duration of the Iranian conflict. With core inflation running stubbornly above the Federal Reserve’s 2.0% target, the market is now pricing in no interest rate cuts for this year.

April’s Small Business Optimism Stable but Below Average

The NFIB Small Business Optimism Index rose in April but remained below its 52-year average for the second consecutive month. While the Uncertainty Index fell, it remains well above its historical average. The NFIB noted that inflationary pressures continue to be a challenge for Main Street. They further note that while small business optimism is currently fragile, the benefits of the Working Families Tax Cut Act (One Big Beautiful Bill) should start to feed into the private sector over the next few months. NFIB headline optimism is a useful proxy for middle-income consumer conditions, which now suggests caution regarding consumer demand.

First Quarter Earnings Continue to Impressively Come in Better Than Expected

With 89% of S&P 500 companies having reported earnings, first-quarter (Q1) 2026 results have been exceptionally strong. For Q1 2026, the blended (year-over-year) earnings growth rate for the S&P 500 is 27.7%. If 27.7% is the actual growth rate for the quarter, it will mark 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 13.1%.

84% of S&P 500 companies reported a positive earnings surprise, and 80% have reported a positive revenue surprise. For the full year, S&P 500 earnings are now projected to grow a robust 22%. Mega-cap technology firms continue to deliver exceptional earnings growth.

Market Dynamics Remain Positive

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

Corporate bonds are signaling a low probability of future defaults – a sign of a healthy economy. Economically sensitive sectors and speculative growth stocks are performing well, while defensive sectors are underperforming. 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.