Author: Davis Finke, CFA
Markets remain highly sensitive to headline risk surrounding the Iran conflict, with sentiment continuing to swing as developments unfold. But despite that volatility, equities pushed to new record highs on Friday, underscoring how supportive the fundamental backdrop remains. Stronger-than-expected earnings, resilient labor market data, and continued strength in technology have helped offset the uncertainty created by rapidly changing geopolitical news. That support has been especially evident this earnings season, as results continue to come in well ahead of expectations.
After another 120-plus S&P 500 companies reported first-quarter results this week, roughly 85% of the index has now reported. Overall, the results have been impressive, with about 85% of companies beating EPS estimates by an average of 19%. The technology sector is once again leading earnings growth, up more than 50% year-over-year, followed by materials and financials. In total, 10 of the 11 sectors are projected to post year-over-year EPS gains, pointing to broad-based earnings strength that is supportive of equity markets overall and reinforces the case for portfolio diversification.
This week also brought several important labor market updates. The April job cuts report showed the highest monthly total in three months, though it remained 21% below April of last year, with layoffs still concentrated in the technology sector. Even so, broader employment data continued to show signs of resilience. April payrolls increased by 115,000, marking the first back-to-back monthly gain in employment in nearly a year, while the unemployment rate held steady at 4.3%. Initial jobless claims also came in below expectations, and continuing claims fell to their lowest level since January 2024. Together, these data points suggest workers may be finding new jobs more quickly and support the view that the labor market is stabilizing. Still, with ongoing concerns about AI-driven displacement and consumer spending accounting for roughly two-thirds of GDP, employment data will remain a closely watched indicator throughout 2026.
