The Market Is Sending a Message. Investors Should Listen.
A funny thing is happening in this market.
Oil has spiked on war headlines, the Fed is still stuck talking tough, and yet stocks keep acting as if they know something the rest of the room is still arguing about. In my view, they do.
The clearest signal is coming from earnings.
By this point in a normal year, analysts have usually spent a good part of the first quarter trimming S&P 500 earnings estimates. That is the usual ritual: start optimistic, mark numbers down, then pretend to be surprised when companies clear the lowered bar. This year has looked very different. Earnings expectations have held up unusually well, and current reporting season data still point to strong profit growth, with FactSet showing double-digit year-over-year earnings growth for the S&P 500 in the first quarter. That helps explain why the market has been able to absorb an oil shock without falling apart. When earnings are getting better, markets will often tolerate a lot of noise.
That brings us to leadership.
One of the more important distinctions in portfolio construction is the difference between tech leadership and broad growth leadership. People tend to talk about those as though they are the same thing. They are not. Sometimes technology leads and drags the index with it. Other times the leadership broadens and the rest of the growth universe takes over. They do not often share the steering wheel for very long.
That matters today because this rally still looks narrower than many casual observers appreciate. Even this week, much of the market’s strength came from semiconductors and a small cluster of large-cap technology names, while a relatively small share of S&P 500 stocks participated in the move. In other words, the index looks healthier than the average stock. That is not a reason to panic, but it is a reason to be selective.
I would frame it this way: the market is rewarding earnings certainty, balance-sheet strength, and real operating leverage. It is not rewarding “growth” in the abstract. It is rewarding the parts of the market where growth is still showing up in actual numbers.
Now let’s talk inflation, because this is where the conversation gets muddy in a hurry.
A lot of the recent inflation debate has centered on tariffs and war. Those are related, but they are not the same thing. The best current Federal Reserve research finds that tariff changes through November 2025 raised core goods PCE prices cumulatively by about 3.1% through February 2026, and boosted core PCE overall by about 0.8%. That is meaningful, but it is also more precise than the blanket claim that all of core inflation is suddenly reaccelerating for mysterious reasons. Tariffs matter. Oil matters for headline inflation. But those are not identical inflation processes.
That is part of why the comments from Kevin Warsh are so interesting. Recent reporting on his testimony suggests he has been emphasizing alternative ways to measure underlying inflation, arguing that the trend may look better using trimmed measures and that the standard data are imperfect. Reuters also noted that while Warsh is pressing for a different framework, there is no guarantee that a new framework would produce a meaningfully better real-time read on inflation. My guess is that some of this is hawkish flexibility: it gives him room to sound disciplined without fully committing to the idea that every inflation overshoot requires a blunt-force policy response.
So where does that leave investors?
To me, the message is fairly straightforward. Earnings are holding up better than usual. Leadership is narrowing, not broadening. Inflation is being pushed around by policy and geopolitics in ways the Fed may choose to look through, at least partly, if core pressures behave. That argues for discipline, not drama.
This is not a market that is inviting investors to swing at everything. It is a market that is telling you to own quality, respect earnings revisions, and understand that index strength can hide a much more selective opportunity set underneath. The market is not whispering right now. It is being fairly direct.
The mistake, as usual, is trying to turn every macro headline into a portfolio overhaul.
Usually the better answer is calmer than that.
If you’d like to talk through portfolio construction in this environment, call me at 661-302-4531 or email Jeremiah.Bauman@LPL.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.