According to FactSet, the S&P 500’s net profit margin is on track to rise to 15.7% in Q2, the highest level since FactSet started tracking the metric in 2009.

A significant driver of this increase came from Alphabet, which reported a…

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But just because I think the stock market is likely to trend higher in the long run doesn’t mean that I think everything is sunshine and rainbows.

There are some things I think that are arguably cynical that, for better or worse, are things that I’d argue are bullish for stocks.

I think we consume and waste too much

Some of us are better at responsible spending. Some of us can’t afford to be wasteful. But many of us just buy too much stuff. We buy clothes we don’t wear, food we don’t eat, toys we don’t play with, kitchenware we don’t use, home decor we don’t put out, subscriptions to newspapers we don’t read, and memberships to gyms we don’t go to.

I’m not one to judge. Just in the past two months, I’ve arguably spent far too much money on World Cup memorabilia and soccer jerseys that are destined for a box in the back of a closet. But I think it all makes me happy or something. And I think I can afford it.

That said, this behavior is bullish because all this spending keeps a lot of people employed at the companies selling all this stuff. That means those employees will have money to buy stuff, and many of the companies selling stuff are publicly traded in the stock market we invest in.

I think we move past tragedies a little fast

I was surprised by how quickly cruising and airline travel recovered and broke records after the COVID-19 pandemic had many of us grounded. Generally speaking, I’m surprised by how quickly we return to our pursuits of happiness after some incredibly horrible news.

Of course, everything is relative. We all have our own way of dealing with things. And when a tragedy hits closer to home for you than for others, you’ll probably take more time than others to return to your normal life.

To be fair, there are many good reasons to move on quickly. Your children won’t stop growing, and your body won’t stop aging. We can’t put our lives on hold forever. We only have so much time on earth to enjoy it with each other. And at the end of our journeys, I’m sure we’re less likely to regret moving on too quickly.

And similar to what I said earlier, taking your kids to Disney World, celebrating that birthday party, and going to that after-work happy hour all put money back into the economy, which puts people to work. And when people work, they have money to spend. Maybe the Disney employee or bartender will even buy the products from whatever company employs you.

I don’t think public companies are trying to make the ‘best’ products

Big, publicly traded companies make pretty good products. But while a publicly traded company might sell more hamburgers than any other restaurant on the planet, I think many of you would agree that the best burger isn’t made by a multi-billion-dollar corporation. It’s made at that local hotspot most people don’t know about. Or maybe you make the best burger.

There are many products and services sold by publicly traded companies, which I’m sure you know can be improved on significantly while still being profitable. But there’s a big difference between being profitable and being increasingly profitable. And publicly traded companies aim to be the latter, as their priority is to increase shareholder returns, not to sell the best product.

So this means pushing the limits of changing a product to appeal to the largest possible audience while cutting costs in every possible way. Eventually, you’re left with a product you’re almost certain to complain about, but you buy it anyway. I’m sure that sounds familiar.

But hey, if you own a big diversified portfolio of stocks, you’ve at least been cashing in on the earnings of the companies making these less-than-best products.

I think most of us will never be satisfied

No matter how good things are, I think most of us think things could be better. We could have more stuff. And that stuff could be better and cheaper.

As long as there is demand for better and cheaper stuff, there will be entrepreneurs innovating and eventually supplying this stuff.

The businesses providing better and cheaper stuff will see revenue grow. Some get big enough to get listed in the stock market. As revenue continues to grow, earnings will go up, driving stock prices higher.

This is the story of the stock market. New companies from new industries emerge, and they help drive the stock market higher. Over time, many of these companies go from leading to lagging. But by then, new companies and new industries emerge again, and the endless cycle continues.

The big picture 🖼️

These are just my opinions.

And there are complex feelings I have about other big issues, including inequality, healthcare costs, retirement, executive compensation, white-collar crime, economic policy, and social safety nets. But I’m still working on how to articulate them.

Ultimately, I see a lot of forces — some bleaker than others — incentivizing people across the wealth spectrum to innovate, work, earn, and spend in ways that fuel earnings growth and in turn send the stock market higher.

To be crystal clear: I’m not suggesting I believe any of this is good. I just think they help explain why the stock market does what it does.

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Related from TKer:

• Berkshire’s new CEO makes explicitly clear what this business is really about 🎯

• Publicly traded companies are not charities 💸

• The hardest part of valuing a company 🔮🧮

• We’re taking that vacation whether we like it or not 🛫

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 0.6% to end at 7,411.98. The index is now down 2.6% from its June 2 closing high of 7,609.78 and up 8.3% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 187,000 during the week ending July 18, down from 209,000 the week prior. It was the lowest weekly print since September 1969. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.796 million during the week ending July 11.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is cooling. According to payroll processor ADP, private U.S. employers added 16,500 jobs in the four weeks ending July 4.

For more on the labor market, read: Things are looking up in the labor market 👍

💳 Card spending data is holding up. From BofA: “TTotal card spending per HH was up 3.5% y/y in the week ending Jul 18, according to BAC aggregated credit & debit card data. Spending growth remains healthy but has slowed, likely due to unfavorable base effects from Prime Day timing change vs 2025. Y/y lower-income spending growth has outpaced higher-income growth for the past two weeks, after lagging for over a year.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices jump. From AAA: “The national average for a gallon of regular gasoline jumped 15 cents from last week to $4.09. Most states are now averaging $4 per gallon or higher. Rising crude oil prices are behind the spike at the pump. Volatility along the Strait of Hormuz and instability in the region have pushed crude oil prices into the $90 per barrel range and could continue driving up costs during the second half of summer.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.58%, up from 6.55% last week.

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏘️ New home sales rose. Sales of newly built homes increased 1.6% in June to an annualized rate of 628,000 units.

New home sales figures come with a large margin of error. For more on this, read: Mathematical context can totally change the story 🧮

🤔 Economic activity survey signals a pickup in growth. From S&P Global’s July U.S. Flash PMI: “Brighter news out of the Middle East has helped restore

some confidence among US businesses in June, though the overall rate of economic growth signalled by the flash PMI survey remains relatively sluggish compared to that seen earlier in the year in the lead up to the conflict. The survey signals that current output levels are consistent with the economy struggling to grow much faster than a 1% annualized rate in the second quarter.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s June State Coincident Indexes report: “Over the past three months, the indexes increased in 46 states and decreased in four states, for a three-month diffusion index of 84. Additionally, in the past month, the indexes increased in 42 states, decreased in three states, and remained stable in five, for a one-month diffusion index of 78.”

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

It is extremely challenging to predict short-term market movements with accuracy. This is reflected in the fact that forecasters frequently revise their targets as the year unfolds.

However, these targets tell us something about Wall Street sentiment. And the research supporting these forecasts can be very interesting.

Most Wall Street firms publish their official annual forecasts for the stock market in November and early December. But one prominent strategist unveiled his 2027 target this week.

Read more

There are well-known risks that are at least somewhat priced into the markets. They are the lingering fears that are covered regularly in the news and surfaced in surveys. As long as new developments related to these risks aren’t much worse than what’s in the range of likely outcomes, markets can handle bad news relatively well.

And there are risks that are not well known, not widely discussed, and not priced into the markets. They often emerge as an unexpected shock event, which is when many market participants decide it’s time to price it in. The nature of the risk isn’t always the most problematic issue for investors. But the introduction of uncertainty alone is enough to send prices lower.

With that in mind, let’s talk about some risks.

What people are worried about 😬

A bunch of firms recently conducted surveys asking people what they’re worried about.

Let’s go through some of the findings.

According to PwC’s Market Volatility Survey released last week, financial services executives’ top concerns include geopolitical events, inflation, interest rates, and government policy uncertainty. Consumers are particularly concerned about inflation, followed by interest rates and stock market volatility.

McKinsey’s June Economic Conditions survey revealed that executives saw geopolitical instability and energy prices as leading risks to global economic growth.

Natixis surveyed market strategists about their top concerns. Leading the way was inflation and the Iran war’s impact on oil prices. Strategists were also broadly concerned about how weak consumer confidence could hinder consumer spending.

Meanwhile, BofA’s July Global Fund Manager Survey showed that participants ranked “AI bubble” as their biggest “tail risk.” That was followed by inflation, bond yields, and geopolitical conflict.

Each survey covers different types of people, and they all word questions differently.

That said, it seems people are generally concerned about inflation, geopolitics, and the stability of the stock and bond markets.

None of this is particularly surprising, as they are the stories dominating the news cycle in business media.

What’s worrisome is what’s not on these lists ⚖️

As TKer Stock Market Truth No. 7 reminds us, there will always be something to worry about.

It’s an inescapable reality of investing in the stock market.

On the bright side, these worries get priced into the market as a discount, which helps to explain why investor returns in the stock market tend to be relatively high.

When investors and traders are aware of a certain risk, they tend to adjust market prices in a way that anticipates the likelihood that a risk event could materialize to some degree. If the event comes to fruition and it’s not as bad as feared, markets tend to react positively. In other words, there are scenarios where bad things happen, and stocks rally.

It may seem counterintuitive. But it’s a positive for investors that there are many things the market is actively worried about. It keeps the market in check and less vulnerable to stomach-churning price swings.

On the other hand, the most destabilizing risks are the ones people aren’t talking about. The unknown unknowns. This is TKer Stock Market Truth No. 8.

Every once in a while, we get an event that’s out of mind or considered extremely unlikely. Consider the attacks on Iran earlier this year, the announcement of sweeping tariffs last year, the failure of Silicon Valley Bank three years ago, or the emergence of COVID-19 six years ago.

Even if these sudden shock events prove benign to economic activity and corporate earnings, the introduction of uncertainty alone is enough to compress valuations and send stock prices lower.

Unfortunately, there’s not much you can do about these unknown unknowns. There’s no knowing what’s coming and when they’ll emerge (unless you’ve got some inside information). There’s also the possibility they’ll never emerge.

The best we can do is understand that sometimes, things will come out of nowhere and send shockwaves through the markets. And given a little time, these things become another one of those more manageable risks that surface on many surveys for months.

The good news is that the stock market has a long history of recovering from unexpected shock events, which means any drop in prices has proven to be a buying opportunity for long-term investors.

An important note on consumers, businesses, and earnings 🤔

It’s not just markets that adjust when traders become aware of new risks. Given time, consumers and businesses adjust as well.

Consumers will make tweaks to their spending and saving behavior. Maybe they’ll work more or change jobs to address new realities.

Businesses will reorganize and restructure their operations, including adjusting supply chains and moving workforces, all with the intent of preserving earnings growth and creating shareholder value.

All this is to say that the economy doesn’t take risks lying down. So, in addition to considering the challenges presented by risks, investors should also think about what could go right.

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Related from TKer:

• ‘The thing I really want to emphasize is that nobody knows’ 🤷🏻‍♂️

• When uncertainty becomes unambiguously high 🎢

• The most destabilizing risks to the stock market 📉

• For markets, there’s one thing worse than bad news 📉📈

• The hardest part of valuing a company 🔮🧮

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 1.5% to end at 7,457.69. The index is now down 2.0% from its June 2 closing high of 7,609.78 and up 8.9% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏦 America’s top banks confirm that the economy remains resilient: From JPMorgan’s Jamie Dimon: “The U.S. economy has demonstrated notable resiliency this year, with stronger business investment and hiring. This strength is being supported by several tailwinds, including AI-driven capital investment, fiscal stimulus, and the benefits of more efficient regulation. However, several risks are shifting below the surface like tectonic plates, including geopolitical tensions and wars, sticky inflation, large global fiscal deficits, and elevated asset prices. We cannot predict how these forces will ultimately play out. They may remain manageable, but they could also cause meaningful disruptions when they shift or collide.”

Here’s Wells Fargo’s Charlie Scharf: “Consumers and businesses remain very strong. Consumer spending is higher, charge-offs and delinquencies are lower, and savings and investments are growing across consumer segments. Businesses are cautious, but balance sheets and cash flows remain strong, resulting in strong credit performance. Equity indices are at or near all-time highs, credit spreads are narrow, and there is a significant amount of liquidity being deployed by banks and non-banks. Concerns around affordability and inflation exist, but the labor market and wage growth remain strong. We know that such favorable conditions do not go on forever, so we are being selective about how much and where to grow. Our goal is to build sustainable higher returns and higher growth that can endure the inevitable market shocks and economic cycles.”

And BofA’s Brian Moynihan: “Against a healthy economic backdrop, resilient consumers and businesses are turning to Bank of America to spend, borrow and invest.”

These statements echo what was said three months ago. For more, read: America’s top bankers confirm: The economy remains resilient 💪

🛍️ Retail shopping activity rose. Retail sales in June increased 0.2% to a record $768.6 billion, as lower spending on gasoline was more than offset by strength in other categories.

Excluding autos and gas, which tend to be volatile in the short term, retail sales climbed 0.4%.

Here’s a look at nominal sales by category.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.5% y/y in the week ending Jul 11, according to BAC aggregated credit & debit card data. Spending growth slowed but remains solid, likely due to unfavorable base effects from Prime Day timing change vs last year. Divergence in restaurants spending growth between host cities & rest of U.S. persists despite number of games coming down.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes improve slightly, but remain in the dump. From the University of Michigan’s July Surveys of Consumers: “With the second straight month of 10% jumps, consumer sentiment climbed to its highest reading since February of this year on the basis of easing price pressures at the pump in recent weeks. All five index components improved, led by significant 20% increases in buying conditions for durables as well as year-ahead business conditions. This month’s rise in sentiment was pervasive across the population, seen across groups by age, income, wealth, and political party. Particularly strong increases were seen among consumers without a bachelor’s degree. However, with prices remaining frustratingly high, consumers are hardly ebullient about the economy; sentiment is down 12% from a year ago. Thus, sentiment’s upward momentum may prove difficult to sustain if recent declines in gas prices continue to reverse course. Interviews for this release spanned June 23 to July 13, with more than 70% completed before the resumption of US strikes against Iran on July 7 and the subsequent increase in gas prices.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🎈Consumer price inflation cooled as gas prices fell. The Consumer Price Index (CPI) increased 3.5% year-over-year in June, down from 4.2% the month prior, as energy prices declined. Adjusted for food and energy prices, core CPI was up 2.6%.

On a month-over-month basis, CPI declined 0.4% as energy prices fell 5.7%. Core CPI was relatively flat, ticking down by just 0.02%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 2.3% and 2.6%, respectively.

While inflation rates have cooled over the years, they remain above the Fed’s 2% target rate.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices tick up. From AAA: “The national average for a gallon of regular gasoline went up 10 cents since last week to $3.94. Instability along the Strait of Hormuz is contributing to the increase at the pump and pushing crude oil prices toward $80 per barrel.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 208,000 during the week ending July 11, down from 216,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.805 million during the week ending July 4.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is positive. According to payroll processor ADP, private U.S. employers added 19,750 jobs in the four weeks ending June 27.

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Homebuilder sentiment ticks lower. From the NAHB: “With the HMI below 40 for 15 straight months, affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market. Looking ahead, the newly enacted housing law is a positive step that will help expand housing supply and lower overall housing costs, although more policy change is needed at the state and local level.”

🔨 New home construction starts fell. Housing starts jumped 19.0% in June to an annualized rate of 1.43 million units, according to the Census Bureau. Building permits fell 3.0% to an annualized rate of 1.37 million units.

It’s worth noting that the starts metric comes with a very large margin of error. For more on margins of error, read: Mathematical context can totally change the story 🧮

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.55%, up from 6.49% last week. From Freddie Mac: “Purchase application demand has weakened recently, but housing affordability is more favorable and housing inventory continues to rise, thus the backdrop for prospective homebuyers is modestly improving.”

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🛠️ Industrial activity increased. Industrial production activity in June rose 0.1% from prior month levels. Manufacturing output was unchanged compared to the prior month.

👎 Small business optimism ticks higher, remains cool. The NFIB’s Small Business Optimism Index rose to 97.4 in June from 95.3 in May. From the NFIB: “Current economic conditions present small business owners with both encouraging developments and ongoing challenges. Lower fuel costs provide welcome relief for businesses as well as consumers, with firms anticipating improved operating conditions over the next six months. While there have been improvements in the overall environment, high interest rates and modest economic growth are causing owners to approach hiring and capital spending with caution.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

😬 This is the stuff pros are worried about. From BofA’s July Global Fund Manager Survey: “‘AI bubble’ rose to the top spot for the biggest tail risk in July per 45% of FMS investors (up from 28% last month). In June, the #1 perceived tail risk was ‘2nd wave inflation’… this has dropped to #2 (26% of investors, from 34%).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Three observations about uncertainty in the markets 😟 and Two times when uncertainty seemed low and confidence was high 🌈

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 1.7% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

Some of that news can affect the earnings of publicly traded companies. Sometimes it’s clear how. Other times, not so much.

For investors, it’s important to understand how news affects earnings — because earnings and expectations for earnings growth are the most important long-term drivers of stock prices. (I’ve explained this in TKer Truth No. 5.)1

But this is not easy to do. So, I’m here to help.

Early in my career, I spent the bulk of my time analyzing public company financial statements. Since then, I’ve found it helpful to think about news items in the context of how they could affect the various line items in these statements, particularly the income statement.

Below, I break down my mental framework for thinking about news. I’ve included some charts for historical context. And it’s all organized like a basic income statement.2

Read more

The first chart came from Citadel’s Scott Rubner.

It shows the correlations among S&P 500 stocks, basically the degree to which stocks move together. A high correlation suggests stocks are largely moving in tandem, whereas a low correlation means they are moving independently.

Rubner’s data shows that correlations have fallen to their lowest level in at least 15 years.

Because low correlation means stocks are diverging from the S&P 500 average, this implies there are more opportunities to trade individual stocks in ways that outperform the market. Therefore, it’s a “stock picker’s market.”

But just because there may be more ways to beat the market doesn’t mean it’s easier to do so.

In these low-correlation markets, you can just as well be overweight stocks that underperform the S&P while being underweight stocks that outperform. Either move would have you doing worse than the market average.

Fundstrat’s Hardika Singh recently highlighted some of the S&P’s big outperformers and underperformers behind a relatively modest move in the market averages over the past few weeks. From her Friday note:

Since memory and storage stocks peaked on June 22, the S&P 500 has gained close to 1%. But moves within single stocks have been much more volatile. Micron shares are down 18% over that period, Sandisk has fallen 18%, and Intel has tumbled 20%. Concerns that Big Tech has overbuilt AI infrastructure have dragged down highflying semiconductor stocks.

The reason why the index hasn’t been hurt by that is that those big declines have been canceled out by even bigger gains from other sectors of the market like financials, industrials, and healthcare. For example, Moderna’s stock is up 29%, while Axon Enterprise has added 42% since June 22.

Again, getting these trades wrong means underperforming the market, potentially by a wide margin.

To be fair, many folks are successful at trading such that they outperform the market. But most fail to do so.

Lower stock correlations don’t appear to be correlated with active manager outperformance 🤔

Notice in Rubner’s chart that correlations have mostly trended lower over the past 15 years. If lower correlations meant it was becoming easier to trade individual stocks, you would think more actively managed equity funds would be outperforming the market.

However, S&P Dow Jones Indices’ data show that most actively managed large-cap equity funds have underperformed the S&P 500 over the years at a somewhat consistent rate. In fact, 2025 saw active managers’ third-worst performance in the past 15 years.

According to BofA’s US Mutual Fund Performance Update report, just 38% of large-cap active funds have outperformed their Russell benchmarks in the first half of 2026. Low correlation between stocks does not appear to be helping most active managers.

One of the key challenges with picking stocks is that few stocks produce above-average returns for any extended period. And very few generate eye-popping returns, which heavily skew how the market averages are calculated.

So, if you fail to pinpoint and get exposure to some of these few winning names, you’re likely to have disappointing returns.

Maybe a lot of ‘buy’ ratings are a good thing 🤔

That brings me to another chart that had me thinking some contrarian thoughts about stock picking.

From FactSet’s John Butters, this chart shows the distribution of analysts’ buy, hold, and sell ratings for individual S&P 500 stocks. Some of you might be surprised, but the vast majority of the analysts’ 12,840 ratings are buy and hold, and very few are sell.

When you consider the historical evidence that shows most stocks tend to perform poorly, you might make a snarky comment about how analysts’ bullish ratings are a disservice to those trading on these calls. And you probably have a good point.

I’ll offer a different view: Buying or holding many different stocks increases the odds that you’ll have exposure to the companies generating the extraordinary returns that lift your entire portfolio's performance.

In other words, if all these buy and hold ratings get you to build a diversified portfolio of many stocks, then maybe that’s a good thing.

Of course, this assumes the big outperformers in the stock market aren’t lost in those sell ratings.

The big picture 🖼️

I’m sure there are some good stock pickers out there who do exceptionally well during periods of low correlation. But that’s different from suggesting that low correlation means more people can become successful stock pickers.

To be clear, I don’t think there’s anything inherently wrong with investing in specific businesses you believe in or stocks you think offer extraordinary value. Your gut instincts and research about certain industries will sometimes be better than the market consensus.

But I’d think twice when you hear phrases like, “It’s a stock picker’s market.” Just because more stocks are diverging from the market average doesn’t necessarily mean it’s easier to pick market-beating stocks.

-

Related from TKer:

• Most stock-picking pros underperformed in 2025’s market rollercoaster 🫤

• The first half of 2026 confirmed a valuable stock market lesson 🤔

• Analysts, companies, and their complicated relationship with earnings estimates 🤝

• The merits of diversification were on full display 🍾

• Let’s take a moment to appreciate the benefits of diversification 🙏

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 adding 1.2% to end at 7,575.39. The index is now down 0.5% from its June 2 closing high of 7,609.78 and up 10.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💳 Card spending data is holding up. From BofA: “Heading into the summer, consumer spending momentum was very strong, with total credit and debit card spending rising 6.3% year-over-year (YoY) in June - the strongest growth in over four years - according to Bank of America internal card data. With gasoline prices falling, the increase in spending growth is almost entirely a discretionary story.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices tick up. From AAA: “Gas prices are going up again, as the future of the ceasefire between the U.S. and Iran remains uncertain. The national average for a gallon of regular gasoline went up 5 cents overnight to $3.84 after steadily dropping since late May. Crude oil prices are currently in the $70 per barrel range but could rise if volatility lingers along the Strait of Hormuz. Prices are still lower than they were in the spring when the national average peaked at $4.56 on May 21.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🎈 Inflation expectations heat up. From the New York Fed’s June Survey of Consumer Expectations: “Median inflation expectations at the one-year-ahead horizon increased by 0.2 percentage point to 3.7% in June, the highest level since September 2023. They also increased by 0.2 percentage point to 3.3% at the three-year horizon, the highest level since June 2022. Median expectations at the five-year horizon were unchanged at 3.0%.”

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 215,000 during the week ending July 4, down from 227,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.814 million during the week ending June 27.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 57,000 jobs in June. The three-month moving average has declined to 111,000.

Total payroll employment rose to a record 158.98 million jobs in June.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — declined to 4.2% in June.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in June. On a year-over-year basis, June’s wages were up 3.5%.

💰 Job switchers get better pay. According to ADP, annual pay in June for people who changed jobs was up 6.5% from a year ago. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers watch wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.584 million job openings in May, up from 7.585 million in April.

During the month, there were 7.31 million unemployed people — meaning there were 1.04 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.71 million people in May. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.17 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In May, 3.07 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

👎 Consumer vibes improve slightly, but remain in the dumps. The Conference Board’s Consumer Confidence Index climbed 0.6 points in June. From the report: “Consumer confidence inched up in June as falling oil prices in recent weeks provided some relief to consumer inflation fears. Consumer appraisals of current business conditions were slightly more positive compared to last month.”

More from the report: “Among age groups, confidence for consumers under age 35 remained the highest, but confidence for all age groups trended downward on a six-month moving average basis. By income, on a six-month moving average basis, confidence was mixed or little changed across all categories. By generation, confidence fell the most for the Silent Generation but was stable or lower for others on a six-month moving average basis. By political affiliation, confidence among Independents and Democrats rose while Republicans were somewhat less positive on a month-over-month basis.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market worsened in June. 24.9% of consumers said jobs were “plentiful,” up slightly from 24.8% in May. Conversely, 22.5% of consumers said jobs were “hard to get,” up from 19.8%.”

More from The Conference Board: “On net, consumers’ negative stance about the labor market outlook was largely unchanged in June. 15.2% of consumers expected more jobs to be available, down from 16.6% in May. However, 25.6% anticipated fewer jobs, down from 27.0%.“

For more on the labor market, read: Things are looking up in the labor market👍

🏚 Home sales declined. Sales of previously owned homes fell 2.4% in June to an annualized rate of 4.09 million units. From NAR chief economist Lawrence Yun: “The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions. However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

Prices for previously owned homes rose from last month and year-ago levels. From the NAR: “The median existing-home sales price for all housing types in June was $440,600, up 1.8% from one year ago ($432,700) – the 36th consecutive month of year-over-year price increases.”

From Yun: “The median home price has reached an all-time high. Even so, affordability is better than a year ago because wage growth is outpacing home price growth. However, progress on long-term housing affordability could be hampered if inventory growth continues to stall. Without consistent gains in inventory, home prices can accelerate. It is critical to introduce more supply to the market to widen the opportunity for homeownership.”

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.49%, up from 6.43% last week. From Freddie Mac: “Mortgage rates have not changed much recently, but economic growth and housing affordability continue to improve for homebuyers as they shop for homes in today’s market.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🔨 Construction spending ticked higher. Construction spending increased 0.1% to an annual rate of $2.21 trillion in May.

📋 Manufacturing activity surveys signal growth, but also challenges. From S&P Global’s June U.S. Manufacturing PMI: “US manufacturers reported a further marked improvement in growth of output and order books in June, according to S&P Global’s PMI data, extending the growth spurt that has been reported since the outbreak of the war in the Middle East. Employment was nevertheless cut sharply as firms often sought to offset the rising cost of energy and raw materials.”

Similarly, the ISM June Manufacturing PMI signaled cooling growth.

📋 Services activity surveys signal growth. From S&P Global’s June U.S. Services PMI: “A slight acceleration of business growth in the services economy takes the expansion to the strongest since the outbreak of the war in the Middle East, though the pace of growth remains lacklustre compared to that seen at the start of the year before the conflict. The survey data are hence broadly indicative of the economy only growing at a 1.2% annualized rate over the second quarter.”

Similarly, the ISM June Manufacturing PMI signaled cooling growth, albeit cooling growth.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 1.4% to a record $83.95 billion in May.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🍾 The entrepreneurial spirit remains elevated. From the Census Bureau: “Business Applications for June 2026, adjusted for seasonal variation, were 531,423, an increase of 1.1% compared to May 2026.“

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 1.3% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

For example, before I knew much about the global stock market, I thought investing in a country’s stock market meant you were investing in its economy. This is far from precise.

I guessed the U.S. stock market was the largest, but I also thought other countries’ markets weren’t far behind. I couldn’t have been more wrong.

And just a few years ago, I assumed that the U.S. stock market’s concentration in a handful of stocks was unusually high. I was wrong about that, too.

Below are a few charts from recent Wall Street research notes that tell us the truth about these imprecise assumptions.

Read more

Meanwhile, the Magnificent 7 — Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta Platforms, and Tesla — were collectively in the red during this period.

If you haven’t already, you’re gonna see a lot of charts circulating that look like the one below from Deutsche Bank’s Jim Reid.

This trend extends a story from 2025 and a lesson we’ve been discussing for years.

Read more

On Thursday, Apple raised prices for Macs, iPads, and home devices by roughly 15%-20%.

And effective Aug. 1, the price of Microsoft’s 512 GB Xbox models will increase by $100 (~25%) and the 1 TB models by $150 (~25%-30%).

And the companies are blaming AI for the price hikes. From Bloomberg: “An Apple spokesperson said that ‘the rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage’ and that the company has ‘never seen a component price increase this much, this quickly.’”

“Unfortunately, console storage and memory prices have increased by more than 2.5x, and we expect another doubling by the fall of 2027,” Microsoft said. “The entire consumer electronics industry is struggling with the current components crisis, but the effects are particularly hard on consoles.“

It’ll be months and years before we fully understand how AI will affect all of our lives. Will we all benefit from a productivity boom? Or will the costs offset those gains?

For now, we’re learning that companies selling non-AI tech products are competing with the megacap tech hyperscalers, which are spending hundreds of billions of dollars building out AI infrastructure.

And this industry-specific supply-demand mismatch is a microeconomic manifestation of a macroeconomic phenomenon we call inflation.

Read more

As a result, it’s somewhat popular to say that people should ignore jarring headlines in the context of their investment portfolios.

On that matter, here’s what Joe Weisenthal asked me on Bloomberg’s Odd Lots podcast during a panel discussion about the AI’s threat to the economy as we know it:

Per the theme of your Substack — generally speaking, stocks go up — is the sub-theme to just ignore everyone else on the stage? Because you’re just going to get distracted, and you’re going to get freaked out, and whatever. …Ignore all the Odd Lots episodes, ignore all the news, ignore the doomers. Because in the end, the only thing that can happen if you pay attention to the news is you do something stupid. Then you missed the long run.

Check this episode of Odd Lots on Spotify, Apple Podcasts, or Bloomberg!

His question cuts to advice that some investors have found helpful. The “bury your head in the sand” playbook can be the right one for those without the intestinal fortitude to hold on to their investments when sh*t hits the fan. Forget your retirement account passwords and ignore the news, and in a couple of years, you’ll hopefully have made progress toward your financial goals.

But for most people, I think this approach is a mistake. Here’s how I answered Joe’s question (edited for clarity, emphasis added):

I’m actually the complete opposite of that. Like I said before, I’m always worried. And this is sort of the message I try to communicate out to the world. I do a lot of things that are kind of counterintuitive. Like, I do check my 401(k) plan every single day. A lot of advisors and professionals will go on TV and say to forget your 401(k) password, or ignore politics, or ignore what’s going on in Iran. We have a long history of getting past all this stuff.

I think that’s all incredibly silly. I think you really do have to think about how bad things are at a given time. That way, you build up those memories so that, 10 years from now, when there is another war, you will remember how bad things were in the past. And you’ll know how markets evolved out of all that stuff.

To ignore things makes you more vulnerable to making mistakes. So yeah, be really conscious where there are [AI-related] job losses, and where there will be industries that fall apart. Because all the lessons you learn today from all the bad things that happen — when you lose your job, and when your neighbors lose their job — and then a couple years from now, maybe the market’s higher. You know, 10 years from now, it’s going to happen all over again, and you’re more robust when that stuff happens. So, I think it’s a complete mistake to ignore terrible things that are going on — as someone who’s optimistic in the long run.

Ignoring or forgetting unpleasant events might come with mental health benefits in the short run.

But in the long run, I think it does more harm than good. Because it could mean putting off a valuable lesson, which could have better prepared you for a similar event in the future.

Keep your thoughts organized 💭

Having a thorough bank of detailed memories, especially the bad ones, helps to better contextualize events causing anxiety today.

You may be thrown off if you don’t remember the last time the media fed you live shots of an escalating war, gave increased airtime to the doom mongers, or sent you frequent push alerts about 1,000-point drops in the Dow. Because when events are new to you, you’ll rightfully feel uncertain because in your mind, there’s no precedent for what comes next.

Consider this passage from the final post I wrote for Business Insider, back in February 2016, which I’ve repeated for TKer subscribers before:

Every major sell-off in history has been accompanied by a mix of economic concerns, monetary policy shifts, geopolitical tensions, or some other source of consternation that might make a rational person demand a higher premium for putting their capital at risk. The details are different each time. But structurally, it’s generally the same story: it’s risky out there. Amid all this, one pattern has stood the test of time: stocks will go down a lot, but then they’ll go up a lot more.

Sounds familiar, right?

Now, this may sound callous — and I’m speaking strictly from the perspective of investing — but the goal is to become a little less sensitive to bad news that you’ve seen before.

To be clear, this doesn’t mean not caring about serious issues. We are human, and bad news affects us and the people we love. In the context of politics and social issues, I think people should certainly be engaged and express their concerns and views. This is another reason why I think people shouldn’t ignore what’s going on in the world.

But in the context of investing, you wanna be like that wise grandparent who’s seen a lot and can match or one-up you every time you mention something difficult going on in your life. Not only are they often sanguine when others are panicking, but they’re also better equipped to identify those moments where things might actually be different this time.

The challenge is organizing your thoughts so you can be mindful of the world around you while thinking as objectively as possible about your finances, minimizing the risk of making emotionally driven mistakes.

For more on organizing your thoughts, read: 4 different ways of looking at the exact same economy 🪖👒🎩🧢

The past is often worse than you remember 🤔

For me, it’s not enough to be present in the moment.

I spend a lot of time looking back at past crises and market crashes. I have lots of old notes and printouts I thumb through. I’m always eager to read research and reflections from others. I sometimes write about it too (see here, here, and here).

For the events I lived through, I’m always struck by how much more intense and unnerving those events were than I can readily recall, which is why I keep thinking back on those moments.

To be clear, I also have lots of great memories from good times that I reflect on. But I believe it makes me more thoughtful to remember that the past wasn’t always perfect.

Because it feels like every couple of days, I read a news headline or get an alert on my phone that has me thinking: Are we on the cusp of a major market downturn?

To be fair, we always might be.

But usually, we aren’t.

Upon deeper reflection, we often learn that the day’s risk event rattling markets is often similar to the run-of-the-mill, short-term bouts of volatility we experience rather frequently.

All this is to say is that as unnerving as things are today, there were likely more unnerving periods in recent history.

Bruises, bike accidents, and broken bones 🤕

Growing up, I had my fair share of accidents.

I’ve received second-degree burns from fireworks. I once got the wind knocked out after jumping off a swing a little too high. I almost drowned while playing in a pool before I knew how to swim. In 7th grade at lunchtime, I choked on hamburger meat. Another time, I choked on a big ice cube. I tore up my knee after I flew over the handlebars while riding a road bike on a rocky trail. I’ve been knocked unconscious at judo practice, and I’ve had my wrist fractured at a judo tournament. I’ve even had my heart broken a couple of times.

These were unhappy experiences. But they were also valuable experiences. They’ve increased my threshold for emotional and physical pain. Importantly, they’ve made me more thoughtful about decisions I’ve made ever since.

I only wonder how I’d behave today if I didn’t have those experiences, or if I had forgotten about them or buried them away. I’d probably be at risk of much more danger than I am now.

To be clear, the memory of all these accidents won’t guarantee that I won’t make some choice in the future that leads to disaster. But at least I’ll be better informed and more thoughtful about my decisions.

Check this episode of Odd Lots on Spotify, Apple Podcasts, or Bloomberg!

-

Related from TKer:

• On presidents, the stock market, and the big picture 🖼

• Stocks usually look past geopolitics, but they shouldn’t be ignored 🫣

• One of the most misunderstood moments in stock market cycles ⏱️

• Remembering moments when I thought things took a permanent turn for the worse 🙇‍♂️

• What I got wrong about the post-Global Financial Crisis recovery ❤️‍🩹

• ‘The thing I really want to emphasize is that nobody knows’ 🤷🏻‍♂️

• It’s OK to have emotions — just don’t let them near your stock portfolio 📉

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 2% to end at 7,354.02. The index is now down 3.4% from its June 2 closing high of 7,609.78 and up 7.4% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🚨 Apple products, XBox prices are going up because of AI. The booming demand for hardware to support AI infrastructure is affecting the consumer tech product supply chain. From Bloomberg (emphasis aded): “The starting price of the MacBook Neo is rising to $699 from $599, while the 13-inch MacBook Air is increasing to $1,299 from $1,099. The 14-inch MacBook Pro is moving to $1,999 from $1,699, while the 16-inch model is now priced from $2,999, up from $2,499… An Apple spokesperson said that ‘the rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage’ and that the company has “never seen a component price increase this much, this quickly.’ Apple added it has ‘shielded our customers from these increases so far, but we have now reached a point where we need to begin raising prices on a number of products, including today’s increases for iPad and Mac.’”

Similarly, from Microsoft: “The price of XBOX consoles will increase by US$100 for 512 GB models and US$150 for 1 TB models… Unfortunately, console storage and memory prices have increased by more than 2.5x and we expect another doubling by the fall of 2027. The entire consumer electronics industry is struggling with the current components crisis, but the effects are particularly hard on consoles.“

🎈 Fed’s preferred inflation measure jumped on higher energy prices. The personal consumption expenditures (PCE) price index in May was up 4.1% from a year ago, fueled by higher energy prices. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.4% during the month, up from April’s 3.3% rate.

On a month-over-month basis, the core PCE price index was up 0.32%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 4.1%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, the recent move higher bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices fall further below $4. According to AAA, the national average for a gallon of regular gasoline declined to $3.91, down from $3.99 last week.

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.7% month-over-month in May to an annual rate of $21.90 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures increased 0.3% from the prior month to another all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In May, the saving rate stood at 3.0%, the lowest level since June 2022.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 6.8% y/y in the week ending Jun 20, according to BAC aggregated credit & debit card data. Ex-gas spending rose by a solid 6.1%. Gas spending growth came down since last week due to lower gas prices after the deal. Father’s Day timing change vs 2025 likely provided some boost too, as 2026 included the Fri (Juneteenth) before Father’s Day.“

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 215,000 during the week ending June 20, down from 227,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.82 million during the week ending June 13.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is stable. According to payroll processor ADP, private U.S. employers added 30,750 jobs in the four weeks ending June 6.

For more on the labor market, read: Things are looking up in the labor market👍

👎 Consumer vibes remain in the dump, but improve slightly. From the University of Michigan’s June Surveys of Consumers: “Consumer sentiment confirmed its early-month reading, rising about 10% above May as gas prices moderated. Increases were seen across income, wealth, and political affiliation. Expected business conditions over the next five years surged 16% as consumers’ worries over long-term consequences of the Iran conflict appear to be easing. Still, sentiment remains in unfavorable territory at 13% below the February 2026 reading prior to the start of the Iran conflict, and nearly 20% less than a year ago. The cost of living remains at the forefront of consumers’ minds; for the third straight month, over half of consumers spontaneously mentioned that high prices are weighing down their personal finances.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 1.6% to a record $84.0 billion in May.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.49%, up from 6.47% last week. From Freddie Mac: “Rates have remained relatively stable over the last six weeks. Meanwhile, purchase activity eased modestly and refinance activity has continued to pick up recently, reflecting borrowers’ responsiveness to current rate levels.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏘️ New home sales fell. Sales of newly built homes declined 7.3% in May to an annualized rate of 580,000 units.

New home sales figures come with a large margin of error. For more on this, read: Mathematical context can totally change the story 🧮

🤔 Economic activity survey signals subdued growth. From S&P Global’s June U.S. Flash PMI: “Brighter news out of the Middle East has helped restore some confidence among US businesses in June, though the overall rate of economic growth signalled by the flash PMI survey remains relatively sluggish compared to that seen earlier in the year in the lead up to the conflict. The survey signals that current output levels are consistent with the economy struggling to grow much faster than a 1% annualized rate in the second quarter.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 2.5% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

At the time, Apple was already the world’s largest publicly traded company with a market cap just north of $500 billion. The idea of it doubling in value was understandably hard for people to get their heads around.

Einhorn told the Ira Sohn Conference that there was no rule preventing a company from reaching a $1 trillion market cap. To support his projection, he argued that it was a mistake to say Apple was a hardware company when so much of its value was driven by its sticky software, including iOS, iTunes, iCloud, and the App Store.

“I believe Apple is a software company that monetizes its value from repeated sales of high-margin hardware,” Einhorn said.

In August that year, Apple’s market cap reached $623 billion, making it the largest publicly traded company in history. Six years later, it became the first $1 trillion company. It’s worth over $4 trillion now.

Credit to Einhorn for seeing what few imagined. (He reportedly earned $1 billion for investors.) Apple’s hardware continues to drive gross profits while commanding an impressively high gross profit margin. (Though the gross profit margin on Apple’s services is much higher.)

That said, I’m pretty sure he didn’t predict all of the markets Apple would enter, which today includes watches, earbuds, and smart speakers.

I similarly doubt that Amazon’s early investors imagined a scenario where the company would become a cloud-computing behemoth, or that Google’s early employees could have predicted it’d dominate mobile operating systems.

This speaks to the impossibly hard, extremely consequential part of valuing a company: predicting whether a company will adapt to a business environment that’s yet to be known and capitalize on opportunities that haven’t yet been invented.

Read more

Joe Weisenthal and Tracy Alloway invited me onto the Odd Lots podcast to chat alongside Silicon Valley culture writer and Research founder James van Geelen. Check it out on Spotify, Apple Podcasts, or Bloomberg!

Jasmine, James, and I are all independent publishers operating in an industry where the business economics are being slammed by the AI wrecking ball causing professional writers to question the value of their work.

We each have different angles on the challenges. But I think ultimately, we are each finding opportunity and growth by offering something AI can’t.

Citrini subscribers (click here to join them) know that James has a strong track record of going deep on big market themes before they hit the radar of most market participants. Recently, Citrini sent an analyst to Oman, where the anonymous contributor managed to get on a speedboat and visit the Strait of Hormuz with “$15,000 in cash and a roll of Zyn.” All this is to say that James and his team are doing things that people can’t get from an AI chatbot.

Jasmine has a refreshingly unusual style of covering tech and tech culture, approaching it less like a reporter and more like a social scientist (click here to see her work). She gets unique perspectives by doing the on-the-ground, in-person reporting that has yet to be meaningfully disrupted by AI. Importantly, she captures original human stories that are often overlooked or deprioritized by brass-tacks observers more interested in tangible outcomes like revenue and compute power.

Their processes and writing styles can’t be distilled down to a formula. There is a distinctly human element to what they do, which can’t be defined precisely.

By definition, AI is not human. Therefore, it will never possess the human qualities from which other humans find intangible value.

“The value of polish is going to go down, and the value of personal charisma, style, and weirdness is going to go up,” Jasmine said at a event in May.

I’m bullish on humans.

Readers tell me TKer is about much more than market information 📈

Joe asked me how I think about content in an era when people can get all their questions about market history easily answered by AI.

“I love your newsletter, I read it, I’m a paid subscriber, and all that,” he said. “I think I could train a model to write a newsletter that says stocks go up.”

To me, this issue is about more than AI. It actually speaks to challenges I’ve been wrestling with since very early in my career. My first two jobs out of school involved legal coding and data entry, tasks that have been increasingly automated. And for the past 20 years, I’ve been writing about markets, which largely involves taking information from one tab on my computer and transferring it into another tab.

And then there’s the fact that I specifically write about news in the context of long-term investing truths, which largely haven’t changed for decades.

“I write about the stock market usually going up, which, even before AI, is kind of a ridiculous thing to be writing about,” I said. “Everyone who has money in their 401(k)s and IRAs has already been told this. So it’s like, ‘Why do I exist?’”

For the most part, the charts and stats I feature are already out there for public consumption.

In other words, information was never really an edge for me.

My edge has been adding value for readers with my eye for curation, my voice, and my mostly as-needed publishing cadence. At least this is what I’ve been told by paid subscribers. (Please click here to join them!)

Much of what I write about can be found in the hundreds of research reports Wall Street firms circulate to the media industry every week. And some of what I write about can be found in the thousands of news articles and dozens of daily newsletters published every day.

But some people don’t like reading those research reports, don’t know which news articles matter, and don’t have the time to open every issue of every daily newsletter.

So without TKer, you might miss the data showing that all-time highs are a great time to buy, a falling personal saving rate isn’t a bad economic signal, and rising interest rates aren’t obviously bad for stocks.

I suspect AI agents — like the one Joe may eventually build — will eventually get better at providing this service in a personalized way.

But AI can’t offer a first-person perspective on why it finds investing to be unpleasant. It can’t experience the lingering anguish and embarrassment a person suffers from poorly timed trades. It won’t share in the traumatic memories from past economic crises. And it won’t feel the panic and helplessness that comes from having your home flooded… twice!

I’m a person with feelings, investing in this rollercoaster stock market alongside you. I know how hard it can be to stick with a plan and trust the data when your world is imploding on you. And I know that sometimes it helps to hear the same lesson for the umpteenth time.

Hope in an uncertain AI future 🌅

TKer isn’t for everyone. At the margin, I suspect I’ll lose some existing or potential subscribers who’ll find their needs served by an AI agent.

But I’m also hopeful that there’ll always be a robust readership seeking articles written by humans. Indeed, history is riddled with cases of emerging technology disrupting industries while leaving plenty of room for stuff that isn’t manufactured by a machine.

Check this episode of Odd Lots on Spotify, Apple Podcasts, or Bloomberg!

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Related from TKer:

• I took no pleasure in that 📈😬

• What I got wrong about the post-Global Financial Crisis recovery ❤️‍🩹

• The unluckiest market timer I know made another poorly timed trade 🤦🏻‍♂️

• No amount of risk management prepares you for when Sam Ro’s apartment gets flooded 🚣🏻

• It’s OK to have emotions — just don’t let them near your stock portfolio 📉

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 gaining 0.9% to end at 7,500.58. The index is now down 1.4% from its June 2 closing high of 7,609.78 and up 9.6% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏛️ Fed holds rates at Kevin Warsh’s first meeting as Chair. On Wednesday, the Federal Reserve kept its benchmark interest rate target range at 3.5% to 3.75%.

From the Fed’s policy statement: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.“

Fed members revised upwards their outlook for inflation and revised downwards their outlook for unemployment.

Notably, 9 of 18 members anticipate a rate hike in 2026.

For more on what Fed policy could mean for markets, read: Does the stock market test new Fed chairs? 🏛️ and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices fall below $4. From AAA: “For the first time since March 30, the national average for a gallon of regular gasoline is down to $3.99. This marks nearly 4 straight weeks of declines. Crude oil prices are down as the U.S. and Iran reach a deal to reopen the Strait of Hormuz.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 226,000 during the week ending June 13, down from 230,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.81 million during the week ending June 6.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is stable. According to payroll processor ADP, private U.S. employers added 25,500 jobs in the four weeks ending May 30.

For more on the labor market, read: Things are looking up in the labor market👍

🛍️ Retail shopping activity rose. Retail sales in May increased 0.9% to a record $763.7 billion, led by higher gasoline prices.

Excluding autos and gas, which tend to be volatile in the short term, retail sales climbed 0.5%.

Most retail categories grew during the period.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.9% y/y in the week ending Jun 13, according to BAC aggregated credit & debit card data. Ex-gas spending rose by a still solid 4.9% y/y. Airlines & electronics spending growth saw the biggest rise since last week. The gap in total card ex-gas spending between higher- and lower-income households has narrowed in recent days.“

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

🛠️ Industrial activity increased. Industrial production activity in May rose 0.1% from prior month levels. Manufacturing output was unchanged compared to the prior month.

🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.47%, down from 6.52% last week. From Freddie Mac: “Incoming data continues to reflect a resilient consumer, with retail sales improving and pending home sales strengthening, suggesting purchase demand is continuing to modestly improve.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Homebuilder sentiment ticks up from low levels. From the NAHB: “Costly and inefficient regulatory policy is clearly impeding the ability of builders to increase the housing supply. According to a new NAHB study, government regulation, taxes, fees and other costs add more than 26% to the price of an average single-family home. Easing permitting bottlenecks, density limits and inefficient zoning rules would help reduce costs and support the housing growth the nation needs.”

🔨 New home construction starts fell. Housing starts declined 15.4% in May to an annualized rate of 1.18 million units, according to the Census Bureau. Building permits fell 0.7% to an annualized rate of 1.41 million units.

😬 This is the stuff pros are worried about. From BofA’s June Global Fund Manager Survey: “FMS investors continue to say the biggest tail risk for markets is ‘2nd wave inflation’ (per 34%). The perceived risk of ‘geopolitical conflict’ has collapsed in the past two months to 12% (from 44%). Tail risk of ‘AI bubble’ has risen to 28% (from 5% two months ago).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Three observations about uncertainty in the markets 😟 and Two times when uncertainty seemed low and confidence was high 🌈

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.0% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

I think their methodology is very good. But I wouldn’t say it’s perfect. Most would agree that it has its weaknesses. And admittedly, I couldn’t tell you what perfect would look like.

I do know that rules are rarely perfect the first time they’re written. The U.S. Constitution has been amended 27 times. The NBA regularly updates the rules of the game. Even casual fans of soccer have noticed that FIFA has introduced new rules for World Cup play. And of course, S&P Dow Jones makes changes to inclusion requirements for its many indexes.

Ultimately, I think that if we discover and agree on ways an index can better deliver on its aims, we should make changes.

Changes in methodology don’t have to mean big changes to performance ⚖️

As I mentioned in Wednesday’s newsletter, I’m not crazy about S&P Dow Jones’ requirement for positive GAAP net income for “the most recent quarter, and the sum of the most recent four consecutive quarters.“ It’s a backward-looking metric, and I’m in the camp that believes stocks trade largely on expectations for future profits.

SpaceX is an example of a massive, unprofitable company that’s largely trading on expectations for future profitability. Sure, there’s no guarantee that it ever earns the kind of profits that justify the current valuation. Nevertheless, it’s a bit odd to me to exclude such a large company from indices intended to reflect the broad market. (To be clear, this doesn’t mean I think SpaceX or any other large company should be added right away. More on that here.)

That said, I also don’t know if there’s an elegant solution to this issue that doesn’t lead to people freaking out.

I did stumble across some interesting alternatives while doing some academic reading and earning continuing education credits.

Rob Arnott and Lillian Wu recently published a paper for the CFA Institute Research & Policy Center. Titled “The Active Side of Indexing,” the paper argues that despite being labeled a passive index, the S&P 500’s design makes it more of an active momentum-driven, “buy high, sell low” strategy with hidden costs that cause performance to drag. It’s a great read.

Among other things, they point out how the index doesn’t necessarily include the 500 largest publicly traded U.S. companies.

“On average between 1991 and 2022, the index overlaps with only about 380 of the 500 largest companies in terms of market cap at any point in time,” they noted. “This means that 120 of the true top 500 market-cap names are excluded, and a similar number of smaller-cap firms take their place. This discrepancy is not a trivial rounding error.”

In their work, the authors explored several alternative methodologies for index construction, including simple market cap and five-year average market cap inclusion requirements. Both get around the profitability problem and other subjective judgments made by the folks at S&P Dow Jones Indices.

They tested what past performance would’ve looked like under these alternative approaches. Interestingly, the results weren’t too dissimilar from the S&P 500’s performance. In fact, the returns were slightly better.

Arnott and Wu’s paper has much more, and it left me with a lot to think about. You can read it here.

I found the results of their alternative index study eye-opening. The findings suggest it’s possible to make significant changes to index inclusion methodology without totally altering the performance, which may make implementing such changes more palatable for investors.

Again, I don’t know what the ultimate answer is.

Maybe they keep the S&P 500 as is, but expand alternative, similar offerings that address concerns investors have regarding inclusion requirements.

Whatever happens, this debate is sure to intensify, especially as a growing number of mega-cap companies hit the market while being excluded from what are supposed to be broad market indices.

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Related from TKer:

• Some thoughts on mega IPOs and market indices...🚀

• How Warren Buffett’s disciples have evaded the ‘stealth bear market’ 🤌

• Why permabears seem right even when they’re wrong 🐻

• Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 gaining 0.6% to end at 7,431.46. The index is now down 2.3% from its June 2 closing high of 7,609.78 and up 8.6% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈Consumer price inflation rises. The Consumer Price Index (CPI) jumped 4.2% year-over-year in May, up from 3.8% the month prior, as energy prices surged. Adjusted for food and energy prices, core CPI was up 2.9%.

On a month-over-month basis, CPI jumped 0.6%, driven by a 3.9% increase in energy prices. Core CPI rose 0.2%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 3.2% and 3.1%, respectively.

While inflation rates have cooled over the years, they remain above the Fed’s 2% target rate.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🎈 Inflation expectations cool marginally. From the New York Fed’s May Survey of Consumer Expectations: “Median inflation expectations decreased by 0.1 percentage point to 3.5% at the one-year-ahead horizon and were unchanged at 3.1% and 3.0% at the three-year and five-year-ahead horizons in May.”

👎Labor market sentiment worsens. From the New York Fed: “The mean perceived probability of losing one’s job in the next 12 months increased by 0.5 percentage point to 15.1%, above the series’ 12-month trailing average of 14.4%. The mean probability of leaving one’s job voluntarily, or the expected quit rate, in the next 12 months increased by 2.6 percentage points to 20.8%, its highest level since February 2023. The increase was broad-based across age, education, and income groups.”

More: “The mean perceived probability of finding a job if one’s current job was lost decreased by 2.3 percentage points to 43.7%, remaining below its 12-month trailing average of 46.8% and marking the lowest reading since December 2025.“

For more on the outlook for jobs, read: The next couple of years for the job market could be tough 🫤

👎 Consumer vibes remain in the dump, but improve slightly. From the University of Michigan’s May Surveys of Consumers: “This month, consumer sentiment ticked up about four index points, or 9%, with consumers experiencing some relief due to the early-month easing in gasoline prices. This measured improvement in sentiment was widespread, seen across age, education, and political party. Lower-income consumers exhibited a particularly strong sentiment increase, consistent with the fact that gasoline comprises a larger share of their budgets. Overall, assessments and expectations of personal finances and business conditions all rose this month. Even with June’s early gains, however, views of the economy are still relatively dour. Sentiment is currently 13% below January 2026 and 19% below a year ago, as consumers remain focused on kitchen table issues. They feel burdened by the recent escalation in inflation and worry that higher inflation could remain stubborn going forward, particularly in the short run.”

According to the survey, consumers are far more concerned about inflation than they are about jobs.

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🤔 Recent private job growth is stable. According to payroll processor ADP, private U.S. employers added 29,000 jobs in the four weeks ending May 23.

For more on the labor market, read: Things are looking up in the labor market👍

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 229,000 during the week ending June 6, up from 225,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.795 million during the week ending May 30.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🛍️ Retail sales may have declined last month. According to the Chicago Fed’s Advance Retail Trade Summary, sales fell 0.3% in May. Adjusted for inflation, sales were down 1.3% from the prior period.

💳 Card spending data is holding up. From BofA: “Consumer spending momentum is remarkably robust, with total card spending rising 5.1% year-over-year (YoY) in May - the strongest growth in nearly four years, according to Bank of America internal card data. Moreover, growth isn’t just gasoline-driven — underlying spending remains firm across both goods and services.“

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas and diesel prices fall but remain elevated. From AAA: “The national average for a gallon of regular has been falling for three straight weeks, delivering some relief to drivers during the busy summer travel season. Since May 21, the national average has dropped from $4.56 to $4.12 thanks to crude oil prices remaining below $100 per barrel. Gas prices typically peak around this time of year, but uncertainty surrounding the Strait of Hormuz makes this year more unpredictable. Pump prices remain at four-year highs, but the national average is currently far from the record set on June 11, 2022, of $5 per gallon.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🏚 Home sales rose. Sales of previously owned homes increased 3.2% in May to an annualized rate of 4.17 million units. From NAR chief economist Lawrence Yun: “Improving affordability is helping drive this momentum. Even with mortgage rates ticking up compared to earlier in the year, they remain lower than a year ago and are essentially at the long-term historical average. Income gains are also outpacing home price growth by a small margin in most parts of the country.”

Prices for previously owned homes rose from last month and year-ago levels. From the NAR: “The median existing-home sales price for all housing types in May was $429,300, up 1.3% from one year ago ($423,700) – the 35th consecutive month of year-over-year price increases.”

From Yun: “The new record-high May home price reflects solid fundamentals for homeowners and ongoing supply constraints. Only 1% of all home sales involved a foreclosure or an underwater situation in which the sale price could not cover the outstanding mortgage balance. This shows that homeowners are on solid financial footing.”

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.52%, up from 6.48% last week. From Freddie Mac: “Stronger employment momentum has helped existing home sales reach a five-month high. Importantly, homebuyers are looking past the short-term rate fluctuations and actively entering the market, signaling renewed confidence in homeownership opportunities.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

👎 Small business optimism remains cool. The NFIB’s Small Business Optimism Index declined to 95.3 in May from 95.9 in April. From the NFIB: “Despite the enthusiasm around AI, the overall picture is divided. More small business owners are struggling with significant and unpredictable hikes in fuel prices, which are more challenging for small businesses to pass on to their customers compared to their larger corporate competitors.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.3% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

The company is currently unprofitable.

But its valuation suggests investors are wagering that it will continue to grow its profitable Starlink service, capitalize on the massive potential opportunity in AI, and eventually achieve at least some of its other almost unbelievably ambitious goals — like establishing “a permanent human colony on Mars with at least 1 million inhabitants.”

Read more

Interestingly, inflation hasn’t really stopped people from spending. Economic data confirm this.

This contradiction helps explain why, despite poor vibes, the economy continues to grow, profit margins continue to expand, and corporate earnings continue to rise.

A recent research note from Goldman Sachs highlights studies reflecting these trends.

First, they cite two studies (this and this) that provide evidence companies have been increasing price markups on the stuff they sell. This evidence is in line with data showing gross profit margins have been expanding.

“After-tax corporate profits as a share of value added have roughly doubled from about 5% in the late 1980s to over 10% recently,” Goldman economists wrote. “Over the same period, U.S. firms have substantially raised markups — the amount by which prices exceed the marginal cost of producing goods and services.”

At least some of this trend toward rising markups over the years can be explained by falling costs. Regardless, the point is that what customers are paying increasingly covers much more than the costs.

But why hasn’t there been more pushback from consumers?

As I’ve been arguing for a while, customers will pay up if they can afford it.

On that, the Goldman economists found studies showing consumers’ sensitivity to price has been on the decline (study), a trend that can be explained by rising incomes (study).

“Higher income raises the opportunity cost of time, leading consumers to search less for lower prices,” Goldman economists wrote.

Of course, this also means wealthier folks are less price sensitive than poorer folks.

“[Economist Kunal Sangani] estimates that increases in average income and in income inequality — which has meant that less price-sensitive households account for a larger share of total consumption — can account for a roughly 8pp rise in the aggregate retail markup from 1980 to 2018,” Goldman economists added.

This speaks to the K-shaped economic narrative, which argues that higher-income cohorts have increasingly driven spending while those on the lower end retrench.

For those familiar with the concept of price elasticity of demand, this discussion isn’t exactly mind-blowing. Nevertheless, it’s a timely one as everyone wrestles with why corporate profit margins remain high despite consumers’ distaste for higher prices.

Take off your sentiment hat🧢 and put on your stock market hat🎩

As a consumer, I don’t like any of this. I’d much rather be a beneficiary of any corporate cost savings. But instead, the opposite appears to be happening.

Admittedly, I’m not helping the problem. Like the people in Sangani’s study, I frequently find myself begrudgingly paying up for stuff when I could be trading down to lower-priced alternatives.

As an investor in the stock market, I suppose I’m willing to tolerate all this as long as it’s driving sustainable earnings growth, which is bullish for the stocks in my portfolio.

This dynamic speaks to the internal conflicts we face living in a world where how you feel and how you’re treated might not align with the overall direction of the economy or the markets.

There are times when you are wearing your sentiment hat. And there might be times you’re motivated to put on your policy hat.

But TKer is a stock market newsletter, which means we’re putting on our stock market hat right now. And the evidence continues to show that publicly traded companies, which are not charities, remain effective at maneuvering in ways that grow earnings and improve shareholder value.

-

Related from TKer:

• A bullish contradiction 🛍

• The stock market isn’t as crazy as you might think 🤨

• Higher energy costs, massive labor costs ... and yet record-high profit margins? 🤑

• Globalization has been great for U.S. corporate profit margins 🌎

• Income and costs affect you and your neighbors differently 💵

• 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,620.90 and a closing high of 7,609.78 on Tuesday. The index closed the week at 7,383.74, up 7.9% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💼 Jobs were created. According to the BLS’s Employment Situation report released on Friday, U.S. employers added 172,000 jobs in May. The three-month moving average has risen to 188,000, the highest level since early 2024.

Total payroll employment rose to a record 159.0 million jobs in May.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — stood at 4.3% in May.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in May. On a year-over-year basis, May’s wages were up 3.4%.

💰 Job switchers get better pay. According to ADP, annual pay in May for people who changed jobs was up 6.5% from a year ago. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.62 million job openings in April, up from 6.89 million in March.

During the month, there were 7.37 million unemployed people — meaning there were 1.03 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.69 million people in April. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.12 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In April, 2.98 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 225,000 during the week ending May 30, up from 212,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.777 million during the week ending May 23.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

💪 Labor productivity increases. From the BLS: “Nonfarm business sector labor productivity increased 0.3% in the first quarter of 2026 … as output increased 1.0% and hours worked increased 0.7%. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.8% in the first quarter of 2026, reflecting an increase in output of 3.2% and increase in hours worked of 0.4%.”

For more, read: Promising signs for productivity ⚙️ and The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.2% y/y in the week ending May 30, according to BAC aggregated credit & debit card data. Ex-gas spending rose by 4.1% y/y. Dept stores, general merch and restaurants saw the biggest pickup in y/y spending growth. The largest declines in y/y spending growth were in furniture, transit, home improvement, clothing, electronics & groceries.“

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas and diesel prices fall but remain elevated. From AAA: “The national average for a gallon of regular gasoline is down 12 cents from last week at $4.42. Crude oil prices have been going down this week amid reports of peace talks with Iran. But the fragile situation could cause oil prices to spike again if a ceasefire deal isn’t reached. The chart below shows how the national average has fluctuated in recent weeks. Gas prices remain the highest they’ve been in four years and will likely remain elevated as the busy summer driving season gets underway.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.48%, down from 6.53% last week. From Freddie Mac: “With mortgage rates in the mid-6% range and income growth outpacing home price growth, housing affordability is marginally improving.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🔨 Construction spending ticked higher. Construction spending increased 0.4% to an annual rate of $2.17 trillion in April.

📋 Manufacturing activity surveys signal growth, but also problems. From S&P Global’s May U.S. Manufacturing PMI: “At first glance, the manufacturing sector seems to be firing on all cylinders but lift the hood and the picture is not so clear. The headline PMI has hit a four-year high, with strong factory production growth for a second successive month in response to a further marked upturn in order books, but since the outbreak of war in the Middle East we have seen production and demand buoyed by stock building as companies worry over rising prices and supply difficulties. This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy, as growth will cool once this stock build has run its course. The incidence of supply chain delays is the highest since August 2022, with the buying of safety stocks not only adding to the supply squeeze from the closure of the Strait of Hormuz but also pushing prices higher for a wide variety of inputs. The resulting steep jump in producer costs sends a worrying signal that broader economy inflation has further to rise in the coming months.”

Similarly, the ISM May Manufacturing PMI signaled growth.

The ISM report also signaled inflation was heating up.

📋 Services activity surveys were mixed. From S&P Global’s May U.S. Services PMI: “Demand for services has been largely stalled over the past three months, losing the strength seen earlier in the year. The sluggish services economy is acting as drag on overall economic growth, which the PMI data signal to be running at a modest annualized pace of just above 1% so far in the second quarter. … Rising costs and cooling demand are meanwhile causing service companies to cut staff at the fastest rate seen since the early months of the pandemic.”

While S&P’s survey signaled cooling growth, ISM’s Services PMI signaled an acceleration in growth.

The ISM report also signaled inflation was heating up.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 1.0% to $82.5 billion in April.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.0% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

Importantly, the multi-month trends suggest we’re on an upswing, which is welcome news following a couple of months of net job losses earlier this year and late last year.

Read more

The pandemic market crash followed an all-time high in February 2020. An all-time high in October 2007 preceded the global financial crisis. The dotcom bubble burst after the market set an all-time high in March 2000. And so on.

But listen very carefully: Just because major market drawdowns are often preceded by record highs doesn’t mean all-time highs are often followed by major market drawdowns.

Read more

Maybe the market eventually moves as they predicted. Sometimes that happens.

But markets are complicated, and they’ll often move in counterintuitive ways.

Consider the recent rally in long-term interest rates. That’s gotta be bad news for the stock market, right? Not necessarily.

In his note to clients on Wednesday, Nick Colas, co-founder of DataTrek Research, challenged the idea that rising rates automatically mean lower stock market valuations. From his note: “You have probably heard this sequence of statements many times: Long-term interest rates are increasing. This means that the present value of future cash flows is declining. Therefore, equity valuations should drop as well.“

TKer subscribers aren’t strangers to this theory.

Colas dismantled this oversimplification, flagging two big problems with the shoddy argument he just summarized.

“The first is that it doesn’t work in real life,” he wrote.

He pointed at 2015 to 2019, when the 10-year U.S. Treasury note yielded an average 2.27%. During that period, the S&P 500’s forward price-to-earnings (P/E) ratio was between 15x and 18x earnings.

He then noted that as of Wednesday, the 10-year yield is now much higher at 4.49%, and yet the forward P/E is also much higher at 21x earnings.

In short, the market didn’t do what some skeptics might’ve assumed.

But does this mean the stock market is irrational? No.

“The second reason that yields and equity valuations move independently of each other comes down to discounted cash flow math,” Colas wrote.

Instead of quoting too much of his work here, I’ll recommend you sign up for his and his colleague Jessica Rabe’s work at DataTrekResearch.com.

But the takeaway from his analysis is that an increase in interest rates is theoretically bad for valuations if you don’t consider earnings growth.

“If interest rates go up 2 percentage points (as they have since 2020) but earnings growth expectations increase by 3 percent, then equity valuations actually increase,” he wrote.

It’s such a refreshingly simple observation that speaks to a massive mistake some short-sighted market prognosticators keep making. And that mistake is adjusting one variable in a complex formula while holding all other variables constant.

In the real world, all other variables are never constant. With the passage of time, a lot of things change. This includes earnings, which we’ve seen trend higher for decades.

Zooming out 🔭

Whether it’s rising interest rates, a stronger dollar, higher tax rates, elevated energy prices, falling rate cut odds, above-average valuations, or a shrinking equity risk premium, investors should be wary of jumping to conclusions after seeing a single metric move unfavorably.

To Colas’ point, you’ll often find historical examples of the market doing the opposite of what you might’ve intuited.

Furthermore, the closer you look, the more likely it is that you’ll find other variables moving in ways that provide a theoretically sound justification for why stocks do what they do.

This is not to say that investors and traders are always rational and never wrong. Rather, it’s all just a reminder that markets are complicated and deserving of analysis that involves more than an assumption based on the move of one variable.

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Related from TKer:

• A few charts to remember before you jump to conclusions 📊

• 3 stock market charts to consider as interest rates rise 📊📉📈

• There’s more to the story than ‘high interest rates are bad for stocks’ 🤨

• The stock market isn’t as crazy as you might think 🤨

• The most important Latin phrase in investing 📜

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,599.38 and a closing high of 7,580.06 on Friday. The index is up 10.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈 Fed’s preferred inflation measure jumped on higher energy prices. The personal consumption expenditures (PCE) price index in April was up 3.8% from a year ago, fueled by higher energy prices. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.3% during the month, up from March’s 3.2% rate.

On a month-over-month basis, the core PCE price index was up 0.24%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 3.8%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, the recent move higher bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas and diesel prices decline but remain elevated. From AAA: “The national average for a gallon of regular gasoline is down 12 cents from last week at $4.42. Crude oil prices have been going down this week amid reports of peace talks with Iran. But the fragile situation could cause oil prices to spike again if a ceasefire deal isn’t reached. The chart below shows how the national average has fluctuated in recent weeks. Gas prices remain the highest they’ve been in four years and will likely remain elevated as the busy summer driving season gets underway.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.5% month-over-month in April to an annual rate of $21.98 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures increased 0.1% from the prior month to another all-time high.

Here’s a breakdown of spending growth by category.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.7% y/y in the week ending May 23, according to BAC aggregated credit & debit card data. Ex-gas spending rose by 4.5% y/y. Memorial Day timing impact is minimal as both ‘25 & ‘26 include the Fri before the holiday. Consumers continue to spend at a healthy pace even as the tailwind from the OBBBA related stimulus is behind them.“

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes remain in the dumps. The Conference Board’s Consumer Confidence Index declined 0.7 points in May. From the report: “Consumer confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified. Consumer appraisals of current business conditions and the current labor market were moderately less positive compared to last month. This was somewhat offset by modest improvements in consumers’ expectations for business conditions and the labor market six months from now. Meanwhile, income expectations eased in May, as those anticipating less income rose.”

More from the report: “Among age groups, confidence ticked up for consumers aged 35-54, but trended downward for older and younger consumers, both month-over-month and on a six-month moving average basis. By income, confidence among higher income groups trended upward on a six-month moving average basis. By generation, confidence improved for the Silent Generation (the oldest group) but was little changed or lower among other generations. By political affiliation, Republicans remained the most optimistic, while Independents were the only group that saw confidence tick up on a month-over-month basis.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market worsened slightly in May. 25.5% of consumers said jobs were ‘plentiful,’ down from 26.9% in April. Conversely, 18.6% of consumers said jobs were ‘hard to get,’ down from 19.4%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). While the metric improved recently, the direction of the spread reflects a cooling labor market.

More from The Conference Board: “Consumers were also more positive about the labor market outlook in May. 17.5% of consumers expected more jobs to be available, up from 16.7% in April. 26.0% anticipated fewer jobs, down from 26.8%.”

For more on the labor market, read: The labor market is cooling 💼

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 215,000 during the week ending May 23, up from 210,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.786 million during the week ending May 16.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is stable. According to payroll processor ADP, private U.S. employers added 35,750 jobs in the four weeks ending May 9.

For more on the labor market, read: The next couple of years for the job market could be tough 🫤

👎 CEO confidence tumbles. From The Conference Board’s Dana Peterson: “CEOs reported that the economy is materially worse now than it was six months ago and expected economic conditions to weaken further over the next six months. Regarding their own industries, CEO assessments about current conditions and expectations in six months deteriorated since last quarter.”

From the firm’s Roger Ferguson: “Among top business risks impacting their industries, CEOs became more worried about cyber risks, with nearly two thirds ranking it a top risk in Q2. Geopolitical and AI & new technology risks also remained top concerns. Risks associated with supply chains and energy rose in importance and intensity in Q2.“

For more on cyber risks, read: Bizarre moment at Berkshire’s annual meeting spotlights cyber risk🤖

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 1.1% to $82.4 billion in April.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.53%, up from 6.51% last week. From Freddie Mac: “Pending home sales have increased three months in a row, indicating there’s latent demand and homebuyers are ready to jump back into the market if mortgage rates decline.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏘️ New home sales fell. Sales of newly built homes declined 6.2% in April to an annualized rate of 622,000 units.

New home sales figures come with a large margin of error. For more on this, read: Mathematical context can totally change the story 🧮

🏠 Home prices cool. According to the S&P CoreLogic Case-Shiller index, home prices were up 0.7% year-over-year in March but declined 0.2% month-over-month. From S&P Dow Jones Indices’ Nicholas Godec: “More than half of the 20 major U.S. housing markets recorded year-over-year price declines in March, reflecting a broadening and deepening housing slowdown. … With consumer inflation accelerating to roughly 3.3% in March, U.S. home values have now fallen in real terms for the 10th consecutive month, underscoring an ongoing erosion of inflation-adjusted housing wealth.”

For more on how home prices may be affecting saving, read: A contrarian note about the falling personal saving rate...💸

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.8% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been on the rise.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation is hovering at near-zero. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

According to BEA data released Thursday, personal consumption expenditures increased 0.5% month over month in April to an annual rate of $21.98 trillion, an all-time high. Adjusted for inflation, real personal consumption expenditures increased 0.1% from the prior month to another all-time high.

What’s striking is that disposable personal income declined by 0.1% during the period.

Taken together, the personal saving rate fell to 2.6%, the lowest level since June 2022.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures.

However, all else is never equal. And incomes and savings rates give an incomplete picture of household finances.

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