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

Highlights for this week include: 

• The May employment report and other labor market indicators are consistent with a healthy labor market, which is the key component for economic growth. 
• Inflation remains stubbornly above the Federal Reserve’s 2.0% inflation target. Coupled with a resilient labor market, this suggests the Federal Reserve will keep interest rates steady for the foreseeable future. 
• While stocks are currently experiencing weakness, this is after a very strong two-month run. While acknowledging the risks posed by the Iranian conflict, consolidation of gains is common after strong market periods. 
• We continue to expect stocks to be supported by further economic growth and robust profits. 

Labor Market Remains Resilient and Consistent with a Healthy Economy 

We follow labor market conditions closely because labor market health is the key linchpin to a healthy consumer and economy. After a solid Job Openings and Labor Turnover Summary (JOLTS) report and ADP’s May payroll report that showed the biggest private sector job gains since January of 2025, it was no surprise that the May employment report came in much better than expected. 

May headline payrolls climbed a sharp 172,000, much better than the expected 88,000. With prior months revised up by 93,000, this puts the average monthly job gains at a healthy 188,000 in the 3 months through May. In a further sign of a robust labor market, the Employment Diffusion Index (a measure of hiring breadth by sector) hit a 6-month high, with 54.4% of all sectors adding jobs. 

While average hourly earnings rose in May, the workweek was constant. Altogether, private payroll income rose a solid 0.4% m/m in May, stronger than the 0.1% and 0.2% gains in March and February, respectively, but weaker than in April. On a 3-month change basis, private payroll income rose 4.3% annualized, just enough to offset higher inflation. Against the backdrop of recent increases in gas prices, this does not imply much of a gain in purchasing power for consumers. However, record tax refunds are providing a cushion for consumption. 

This employment report shows stronger labor demand this year, diminishing perceived downside risks to the labor market that existed in 2025. 

Inflation Remains a Concern 

The ongoing conflict in the Middle East continues to dominate inflation data, as consumer prices rose 0.5% in May after outsized increases in March and April. More than half of the May increase came from energy, with gasoline jumping 7.0%. Core CPI, which excludes volatile food and energy, rose a more modest 0.2% in May, below the consensus expected 0.3%. Consumer prices are up 4.2% in the past year, the largest twelve-month increase since early 2023, while core prices have increased 2.9% in the past year, nearly identical to the 2.8% pace for the twelve months ending May 2025. 

Inflation remains stubbornly above the Federal Reserve’s 2.0% inflation target. Coupled with a resilient labor market, this suggests the Federal Reserve will keep interest rates steady for the foreseeable future. 

Key Takeaways from First Quarter Earnings and the Full Year Outlook 

First quarter 2026 earnings were exceptionally strong, with earnings growth for the S&P 500 coming in at 28.6%. The outlook for full-year 2026 earnings growth now stands at 24%. This is up substantially from the beginning of the year estimate of 15%, going a long way to support stock prices. 

The Technology sector, which makes up a substantial 39% of the total S&P 500, continues to do the heavy lifting and is now expected to deliver 51% earnings growth in 2026. Al capital expenditures are driving earnings growth for the Technology sector, and we expect this to continue. 

Remaining Positive on the Market 

While stocks are currently experiencing weakness, this is after a very strong two-month run. While acknowledging the risks posed by the Iranian conflict, consolidation of gains is common after strong market periods. 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. 

For all the latest news, follow us on Facebook or sign up for Glenside Local’s “Daily Buzz” newsletter here.