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🌎 The Big Picture

The market is up. But nothing feels good out there.

It's time for a reminder that the stock market is not the economy. It makes sense once you understand what the market actually measures.

When people say "the market," they usually mean the S&P 500 index that tracks the market values of the 500 largest public companies in the US, weighted by the size of the company.

Not small businesses. Not your local economy. Not how most people are actually feeling day to day.

Small businesses make up roughly 99% of all US businesses and employ nearly half of all private sector workers. None of them is in the S&P 500.

So when the market rises, it's reflecting the performance of large public companies, not the broader economic experience most people are actually living.

And it gets more concentrated than that. The ten largest companies out of those 500 often make up more than a third of the index's total value. So when a handful of giants are doing well, the “market” can keep “going up” even if the rest of the picture is mixed.

One more layer: Stock prices don't reflect how the economy feels right now. They reflect investors' expectations about the future.

Specifically, it's about their expectations for corporate profit growth.

When investors are confident that America's biggest companies will keep growing their profits, they tend to buy shares of their stock to benefit from that growth, driving stock prices higher. So the market and the economy can move in different directions at the same time.

And America's biggest companies are off to a strong start this earnings season with massive profits.

According to FactSet's latest Earnings Insight report, profits for companies in the S&P 500 are on track to grow 13.2% in the first quarter compared to a year ago, which would mark the sixth quarter in a row of double-digit profit growth.

Only 10% of companies have reported their first-quarter financial results so far, but the early results are strong. So far, 88% of companies have reported higher profits than analysts expected, well above the usual rate of around 78%. Sales are also up nearly 10%, the best revenue growth since 2022. Banks and tech companies are leading the way, while energy companies are the one weak spot, with lower oil profits pulling that sector down. Corporate profits are the main driver of stock prices over the long term, so strong profit growth can be a positive sign for investment portfolios.

Meanwhile, Americans’ confidence in the economy fell to a record low in April,

driven by fears that the Iran conflict would push energy prices higher and keep the cost of living elevated. The University of Michigan’s Surveys of Consumers showed sentiment dropped 10.7% from March, with every component of the index declining and setbacks reported across all ages, income levels, and political affiliations. People reported feeling worse about their personal finances, less willing to make big purchases like cars and appliances, and more concerned about where prices are headed.

The biggest concern is about the cost of living. People expect prices to rise by 4.8% over the next year, up a full percentage point from the month before and the largest one-month increase in inflation expectations since last spring’s tariff announcements. Policymakers watch inflation expectations closely because they can become self-fulfilling, as people shift their spending habits and businesses raise prices in anticipation.

It is worth noting that 98% of interviews were completed before a ceasefire was announced on April 7, so the data largely reflects peak anxiety. These expectations could make policymakers less eager to bring down borrowing costs, and businesses may need to adapt to shifting customer preferences.

And small businesses are pulling back in the face of higher fuel costs.

Bank of America's latest analysis of its transaction data across millions of customers found that fuel expenses, freight costs, and tariff-related inventory bills all climbed sharply in March, leaving small business owners with less room to hire, invest, or expand. Firms spent 23% more last month on gas than they did last March. Agriculture and trucking companies got hit the hardest. Those higher fuel costs did not stay contained. Since the start of the war in the Middle East, truck freight costs have surged nearly 50%, pushing up the price of moving goods across the country.

Business owners responded by pulling back. Payroll spending broadly declined for the third consecutive month. Some industries were looking to hire. Construction and manufacturing increased hiring, with recruiting-related spending at its highest in about a year. On the positive side, profits at small businesses are still growing, but only at about a quarter of the pace of the first quarter last year. Small businesses employ nearly half of all private-sector workers, so when owners pause on hiring, it gets harder for people to find work. For now, business owners are being cautious.

🏭 The Companies Everyone’s Talking About

❔ The Big Question of the Week

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