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

Highlights for this week include: 

• The ISM business surveys, which provide timely insight into the U.S. economy, showed an acceleration  in activity in May. 
• Key labor market indicators remain consistent with a healthy labor market.  
• 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 ISM Business Surveys Consistent with a Robust Economy  

At the beginning of every month, the Institute for Supply Management releases private sector business  surveys that cover both the manufacturing sector and much larger services sector. These surveys provide  timely insight into the U.S. economy. Importantly, both showed an acceleration in activity in May.  

The ISM Manufacturing Index beat expectations and rose to the highest level since 2022. This is now the fifth  consecutive month of expansion for the index, an encouraging development considering manufacturing had  been sluggish for the past three years. Growth remained broad in May, with sixteen out of the eighteen  major manufacturing categories reporting expansion, while one reported contraction. The major measures of  activity were mostly higher, including the two most important indexes, new orders and production, which  rose further into expansion territory. Manufacturing is being supported by reshoring of production, the AI  buildout, and favorable business tax incentives provided as part of last year’s One Big Beautiful Bill.  

The ISM Non-Manufacturing Index, the sector that drives two-thirds of economic activity, also showed  acceleration, coming in better than expected. Overall growth was broad in May with seventeen out of the  eighteen major service industries reporting growth, only the Real Estate industry reported contraction. However, both surveys showed inflationary pressures due to supply chain issues and high fuel costs.  

Key Labor Market Indicators Consistent with a Healthy Labor Market 

The Job Openings and Labor Turnover Summary (JOLTS) report showed April job openings jumping much better than expected by 731,000 to 7.6 million. This is the highest reading since March 2024. The number of  job openings per unemployed stands at 1.03, the highest level since January 2025, but still well below its  peak of 2.0 jobs per worker (12 million) in early 2022 when the labor market was very overheated. 

The strength in April’s JOLTS report was concentrated in Professional & Business Services (+668,000) – in  contrast to the sector’s recent sluggishness – an encouraging sign, given the concerns about AI hurting  employment for this sector.

The payroll firm ADP also released its employment report this week which showed the private sector gaining 122,000 jobs in May, the biggest since January 2025. These reports bode well for Friday’s job report. 

Earnings and a Positive Outlook Continue to Support Stock Prices  

The just completed first quarter (Q1) 2026 earnings season showed exceptionally strong results, with earnings  growth for the S&P 500 coming in at 28.6%. 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%.  

The outlook for full-year 2026 earnings growth now stands at 24%. This is up substantially from the  beginning of year estimate of 15%. Earnings are going a long way to support stock prices. We started the  year with a forward price-to-earnings (P/E) valuation metric of 22, and even after an 11% return for the S&P  500 through May 31, the forward PE has compressed to 21. 

The Technology sector, which now makes up a substantial 38% of the total S&P 500, continues to do the  heavy lifting and is now expected to deliver 51% earnings growth in 2026. This helps explain the sector’s 24%  total return through May, second only to the Energy sector’s 26% return. 

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 for 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 

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a  solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions  expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation,  or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral  commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein  is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by  us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or  members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from  time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report  is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any  person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy  Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to  purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There  are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For  additional information or questions, please consult with your Financial Advisor.

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