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

Highlights for this week include:

• March’s retail sales came in better-than-expected and suggest the consumer remains resilient despite the Iranian conflict.
• Weekly jobless claims remain near historic lows, consistent with a healthy labor market.
• Earnings continue to come in better-than-expected, and healthy first-quarter economic indicators
  support the outlook for another good earnings season.
• Stock market dynamics improved considerably through April, with the S&P 500 at an all-time high. This is supported by healthy economic readings and corporate profitability, discussed below.

March Retail Sales Comes in Better Than Expected and Consistent with a Resilient Consumer

Retail sales exceeded expectations, jumping 1.7% m/m in March and following a solid 0.7% gain in February. While there was a 15.5% surge in gas station sales, overall sales growth was robust with every major category besides miscellaneous store retailers rising in March.

Consumer spending is being supported by large tax refunds, a softer but still healthy labor market, and
record-high consumer net worth due to rising home values and stock market gains. While consumer
confidence has been hurt by stubbornly high inflation and now the Iranian conflict, the incoming economic readings remain consistent with a resilient consumer.

March’s Architecture Billings Index, which leads construction spending by roughly half a year, climbed to its highest reading since early 2023. Architecture Inquiries, which tend to lead billings, jumped to the highest level since mid-2022. Meanwhile, initial jobless claims, a timely and accurate measure of labor market health, remain near historic lows of around 200,000 and consistent with a healthy labor market.

These indicators, coupled with the early regional manufacturing surveys for April, suggest the economy
remains healthy, despite the Iranian conflict.

First Quarter Earnings Season off to a Positive Start

Given solid economic readings through the first quarter, we expected to see healthy corporate profits this earnings season. So far, we are encouraged by the results.

With 21% of the S&P 500 market capitalization reported, earnings growth expectations are up to a healthy 15% rate for the first quarter. Earnings are beating estimates by 10.6% on aggregate so far, with 79% of companies topping projections to date. Earnings are on pace for 18.0% growth, assuming the historical trend of estimate revisions through the end of the reporting season.

The broad technology sector is once again expected to lead with earnings growth estimated at 32%.
Materials, estimated at 22%, and financials, at 20%, are also expected to outgrow the broader market.

Market Dynamics Have Improved Considerably Through April

Stock market dynamics have improved considerably through April. The S&P 500 stands at an all-time high, supported by healthy economic readings and corporate profitability discussed above. Corporate bonds are also signaling a low probability of future defaults – a sign of a healthy economy. Economically sensitive sectors and speculative growth stocks are also performing well, while defensive sectors are underperforming.

These confirming signals suggest the market is focused on positive economic fundamentals and is looking past the Iranian conflict.

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