Markets Move Higher As Fundamentals Improve

Markets moved higher last week as the Fed Chairman gave his final briefing. The Fed left interest rates steady at the conclusion of their April meeting, which was largely

baked into current market levels as the S&P 500 Index finished almost flat on Wednesday. Futures on Fed Rates show no rate actions until late 2027. Any change to rate actions seems to hinge on the Iranian conflict. Powell stated last week, "In the near term, higher energy prices will boost inflation." A resolution in the Middle East could bring down oil prices, but tensions remain leaving any kind of rate action uncertain for the time being.

Corporate earnings continue to come in higher for the first quarter and net profit margin is at a 5-year high. With more than two-thirds of S&P 500 companies having

reported first quarter earnings, 84% have exceeded earnings estimates and 81% have out-paced revenue estimates. Net profit margins have steadily moved higher, as well, helping equities to continue advancing. Jobless Claims and Wage Growth have given life to stale job market. Jobless claims dropped this week to the lowest level in two years and weekly ADP numbers have shown job growth, giving hope that April's job report this week will show another solid month of gains. If consumers maintain their earnings with steady jobs and continue spending, it is likely that corporate profits will remain elevated.

While the situation in the Middle East has not been resolved, financial stress has eased considerably. Both the St. Louis Fed's Financial Stress Index and the Chicago Fed's

National Financial Conditions Index have declined over the past several weeks. While both indices became a little elevated during the height of the Iranian conflict, neither index reached the stress levels of the tariff tantrums of last year. Both indices are well below zero, which is not indicative of recessionary conditions. While headlines are still likely to move markets from time to time, it would seem the stress on markets is largely over. Investors should stick to their financial plans and ignore the noise.

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