A cooler labor market with steady underpinnings

Dave Harrison Smith, CFA
Chief Investment Officer
May 4, 2026

Cooling but stable

A central question for investors over the past year has been the health of the U.S. labor market. Concerns peaked in early 2025 as tariffs weighed on corporate activity and hiring slowed. Uncertainty resurfaced following the dismissal of Bureau of Labor Statistics head Erika McEntarfer after a July jobs report that included sizable revisions, raising questions around data reliability. Despite the noise, the underlying signal is one of stabilization at a relatively cool but constructive level.

Composite labor data support that view. Continuing unemployment claims, which reflect individuals receiving benefits after an initial claim, have trended modestly lower in recent months and reached their lowest level in two years in April. Flat to slightly declining claims point to a labor market that is no longer tightening but not meaningfully deteriorating either.

Data on net hires from private sources such as ADP show a similar pattern. Hiring has slowed but remains steady, with a three-month average of just over 49,000 net new jobs added monthly since August 2025. While well below the pace seen in 2024, this level is consistent with a more stable backdrop, particularly as labor force growth has slowed alongside lower net immigration.

All told, we have increased confidence in a cool but stable labor backdrop, which should remain broadly constructive for markets. That said, the aggregate data continues to mask pockets of weakness. New graduates, younger workers, and certain sectors are facing more pressure. Even so, from a broad macro perspective, the labor market appears relatively steady.

Continuing unemployment claims point to a stable labor market

Capital earnings remain strong

Far from steady and cool, corporate earnings are absolutely booming.

With 66 percent of the S&P 500 reporting first-quarter results, earnings per share are tracking to grow 25 percent year over year, the strongest pace in several years. Adjusting for other income in select technology companies, which reflects gains tied to private equity stakes, growth is still tracking at a solid 16 percent. Strength is most evident in Energy, Information Technology, and Industrials, supported by higher energy prices and early returns on investment in artificial intelligence.

S&P 500 earnings growth remains solid

Importantly, growth is not limited to a narrow group of companies. The median S&P 500 constituent is tracking to grow earnings before interest and taxes at 11.2 percent in the first quarter, pointing to broad-based strength. Earnings breadth remains an important support for markets, particularly given the increasingly concentrated nature of index performance.

With more than one-third of companies yet to report, including many small and mid-cap firms, we continue to monitor results closely. Risks remain, especially if elevated energy prices begin to weigh on consumer behavior and feed into core inflation. Even so, a key pillar of market support. corporate earnings growth. appears firmly intact.

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