Who Needs Lower Rates?

• U.S. labor market strengthened with 115,000 April jobs (vs. 65,000 expected) and unemployment holding at 4.3%, while the 6-month payroll moving average reached a one-year high of 55,000
• Inflation remains sticky with April CPI at 3.8% and Core CPI at 2.8% annually, both well above the Fed's 2% target
• S&P 500 companies reported Q1 earnings 20.2% higher than expectations, while U.S. GDP growth of 2% in Q1 outpaced the prior quarter's 0.5% and exceeded other major economies

Market Summary: Fed Rate Cuts Unlikely as Economy Shows Strength

Key Findings:

Recent economic data indicates Federal Reserve rate cuts are unlikely in the near term, yet equity markets continue reaching new highs despite this outlook.

Economic Indicators:

1. Labor Market: U.S. employers added 115,000 jobs in April 2026, significantly exceeding the 65,000 forecast, with unemployment remaining low at 4.3%. March saw 185,000 jobs created versus 65,000 expected. The 6-month moving average for payrolls reached 55,000, its highest level in a year, signaling recovery from late 2025 lows.

1. Inflation: April's Consumer Price Index (CPI) rose 3.8% annually, while Core CPI increased 2.8% year-over-year—both well above the Fed's 2% target, indicating persistent inflationary pressures.

1. Corporate Earnings: S&P 500 companies reported first-quarter earnings 20.2% higher than analyst expectations, demonstrating robust profitability.

1. GDP Growth: The U.S. economy expanded 2% in Q1 2026, a substantial improvement from 0.5% growth in Q4 2025, and outperformed major economies including Canada, Japan, the UK, and Germany.

Market Implications:

Treasury yields have risen sharply since the Iran war began, with 2-year yields up nearly 50 basis points and 10-year yields up approximately 45 basis points. Despite higher rates, the S&P 500 achieved its sixth consecutive week of positive returns, reaching new highs.

Conclusion:

Strong economic fundamentals—including employment growth, corporate profitability, and GDP expansion—are fueling equity market gains even without anticipated Fed rate cuts. Investors should adjust expectations regarding monetary policy easing.