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

Highlights for this week include: 

• Consumer spending closed out the first half of 2026 on solid footing with retail sales rising 0.2 percent in June and up 6.7 percent versus a year ago. 

• June industrial production (IP) disappointed but still set a cycle high. IP grew at an annual rate of 4.0  percent in the second quarter, as capital expenditures and manufacturing continue to drive economic  activity. 

• Profit growth provides the fundamental support for stocks, and the second quarter earnings season is  off to another positive start after strong first quarter results. Given the ongoing massive AI 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. 

Retail Sales Continue to Signal a Resilient Consumer 

Consumer spending closed out the first half of 2026 on solid footing with retail sales rising 0.2 percent in  June, matching consensus expectations, and up 6.7 percent versus a year ago. Gains were broad-based with  seven out of the thirteen major sales categories rising.  

Core sales, which strip out the volatile categories for autos and gas stations and are important for estimating overall economic growth, rose 0.4 percent in June and were running at a 9.1 percent annualized growth rate  in the second quarter versus the first quarter average – the fastest quarterly growth rate in three years. Sales  at non-store retailers (internet and mail-order) have been the standout within the core grouping, up 1.9 percent in the month and rising at an 18.2 percent annualized rate in the second quarter.  

Consumer spending is being supported by a healthy labor market, higher tax refunds, and stock market  gains.  

Industrial Production Disappoints but Still Hits a Cycle High 

June industrial production (IP) disappointed but still set a cycle high. IP ticked up just 0.1 percent m/m, but  it’s been rising for the past 2 years and grew at an annual rate of 4.0 percent in the second quarter, as capital  expenditures and manufacturing continue to drive economic activity. The largest positive contributions came  from mining and utilities, which both rose 0.4 percent. Gains in mining output were driven by oil and gas  activity. Mining output is up at a rapid 12.1 percent annualized rate in the last three months, a positive signal that US energy companies are ramping up output as supply disruptions continue in the Middle East. 

Meanwhile, utilities output (which is volatile and largely dependent on weather from month to month) has  been on an upward trend since 2023, following nearly twenty years of stagnation, as power-hungry data  centers have boosted demand for US power generation.  

While the manufacturing sector stalled for the first time this year, underlying strength remains. Production in  high-tech equipment, which is benefiting from investment in AI as well as the reshoring of semiconductor  production, increased 0.4 percent in June. High-tech manufacturing is up 11.1 percent in the past year (the  fastest rate of any series) and up at an even faster 15.5 percent annualized rate in the past three months. In  addition, manufacturing of business equipment was up 5.5 percent in the past year, outpacing the 1.1 percent gain in overall industrial production and signaling a broader reindustrialization. 

Jobless Claims Fall to Lowest Level Since 1969, Consistent with a Healthy Labor Market 

Initial jobless claims fell 22,000 to 187,000, the lowest since 1969 when the labor force was much smaller.  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’ve been trending lower all year and are down almost 9 percent y/y – consistent with a healthy  labor market and economy.  

Earnings Season Off to Another Positive Start 

The second quarter (Q2) of 2026 earnings season is off to another positive start after a strong first quarter.  About 26 percent of the S&P 500’s market capitalization has reported so far, and expectations are now for 2Q  earnings to grow an impressive 25 percent. Technology (AI beneficiaries) and Energy are leading earnings  growth. Earnings are beating estimates by 42 percent on aggregate so far, with 80 percent 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  encouraged by the underlying market dynamics. Economically sensitive sectors like Financials and Industrials  continue to perform well. Small-cap stocks, another economically sensitive group, are also performing well. We continue to expect stocks to be supported by further economic growth and robust profits.  

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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