Economy
The Institute for Supply Management (ISM) reported marginal growth in the service economy last month, slightly below what economists had forecasted. The report suggests that nonmanufacturing employers were slow to hire and business activity has slowed to a stall. This report was released a few days ahead of the Trump administration's deadline for the highest average tariff rates since the 1930's kicked in. Imports face a baseline 10% tariff, with an average rate of 17%. The ISM report is the latest data point reinforcing the narrative that we have a quickly weakening labor market. Last week's jobs report got a lot of attention for all the wrong reasons, and the bond market is now pricing in nearly a 50% likelihood that we see the Federal Reserve cut rates 3 times between now and the end of 2025. The Fed has historically cut rates in response to a slowing economy as a measure to jump start borrowing and spending activity.
Markets
The S&P 500 rose by 2.43% this week, gaining back nearly all of last week's losses and closing just below all-time high levels. Earnings reports continue to roll in with strong results. FactSet reports that 90% of S&P 500 companies have reported results, and 81% of those that have reported have bested their earnings expectations. Corporate profits have risen by double digits and if that holds for the remainder of earnings season, it would mark the third consecutive quarter of double-digit earnings growth. The bottom line is, companies are really good at protecting their bottom line. This week's market gains were led by the mega cap companies, the largest components of the S&P 500. Six of the Magnificent Seven companies (sorry Microsoft) outperformed the S&P 500 this week, with Apple climbing more than 13%. The rest of the market, excluding the Mag 7 companies, was basically flat. Our highly concentrated market just got a bit more concentrated towards the top.
What We're Reading
- Tech Earnings Takeaway - WSJ
- Does the 4% Rule Still Apply? - Ben Carlson
Have a great weekend.
Dogwood Wealth Management