From the desks of Stanley Katz & Lauren Madera
“IF YOU CAN’T FLY THEN RUN, IF YOU CAN’T RUN THEN WALK, IF YOU CAN’T WALK THEN CRAWL, BUT WHATEVER YOU DO YOU HAVE TO KEEP MOVING FORWARD.”
— DR. MARTIN LUTHER KING JR.
This week brought a modest pullback (DJIA: -0.29%, S&P 500: -0.39%, Nasdaq: -0.66%) that marked a pause in the year’s positive momentum, coinciding with intensifying questions about Federal Reserve independence. A criminal investigation into Fed Chair Powell regarding the central bank’s headquarters renovation has drawn unusual international support for Fed autonomy. Yet markets have remained largely unfazed. Schwab strategists attribute this calm to broad confidence that the Fed will ultimately prevail in setting policy independently. The bond market’s notable calm reinforces this view, with Treasury yields holding in a narrow range that reflects investor conviction that no fundamental shift in monetary policy direction is imminent.
However, underlying economic data presents a more complicated picture. According to Schwab strategists, the labor market continues in what they describe as a “no hiring, no firing” stasis. Unemployment is elevated at 4.6%, job openings are soft, and recent wage gains may hint at sticky inflation. Producer prices came in hotter than expected, reinforcing that inflation remains stuck well above the Fed’s 2% target with limited directional momentum. For the bond market’s current complacency to hold, inflation needs to meaningfully decline or the labor market needs to weaken more substantially—scenarios that carry their own economic risks.
Earnings season has begun in earnest, revealing a market picture that differs notably from the concentration that dominated 2025. According to BlackRock’s analysis, the earnings gap between the Magnificent Seven mega-cap stocks and the broader S&P 500 is narrowing as the remaining 493 companies see earnings improve. This represents genuine economic resilience beyond concentrated technology exposure. Three themes merit attention as results roll in.
- The continued narrowing of earnings performance between mega caps and the broader market.
- Cyclical sectors including industrials and materials gaining support from mega forces such as AI infrastructure buildout, energy transition investment, and increased defense spending.
- AI-related productivity gains potentially offsetting the typical pattern of earnings estimate downgrades as the year progresses.
While the Magnificent Seven remain resilient performers, broadening participation in corporate profit growth is creating support across a wider spectrum of the economy. This week’s pullback may simply reflect normal consolidation after a strong January start, though investors should remain attentive to whether incoming data on labor markets, inflation, and earnings quality can sustain broadening strength without triggering policy uncertainty.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Schwab:
BlackRock:
Capital Group:
J.P. Morgan Asset Management:
Northern Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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