Raymond James Chief Economist Eugenio J. Alemán discusses current economic conditions.

Ahead of next week’s May employment report, the summer jobs market is coming into focus as teenagers and students finish the school year. According to Challenger, Gray & Christmas, teen hiring from May through July is expected to total just 790,000 jobs this summer, down slightly from 801,000 last summer. If realized, that would be the weakest summer for teen hiring in the history of the Bureau of Labor Statistics data, which begins in 1948. Last summer was already the prior low; before that, the weakest readings were in 1949, in the post-war demobilization period, and in 2010, in the aftermath of the global financial crisis.

That historical context is important. Unlike 1949 or 2010, last year’s weak teen hiring did not coincide with a recession, and a recession is not our baseline for this year either. In our view, the weakness in teen summer employment looks less like a traditional recession signal and more like the result of structural changes in teen labor supply colliding with a more cautious hiring environment. Since the early 2000s, teen labor force participation has fallen significantly as shown in the chart below. Although it has recovered somewhat in recent years, it remains well below the levels that prevailed for much of the second half of the 20th century. A large part of that decline likely reflects changing priorities among students and families. Summer jobs now compete with AP coursework, test preparation, college admissions activities, club sports, camps, internships, volunteer work and other structured activities that are often viewed as part of the college and career-building process.

At the same time, summer employment remains an important steppingstone for younger and entry-level workers. These jobs provide early exposure to the workforce, helping teens develop soft skills such as communication, teamwork, responsibility and time management. They also give young workers a better understanding of workplace expectations, professional environments and the day-to-day realities of different industries and career paths. For many, a summer job serves as a first opportunity to build confidence, establish work habits, gain financial independence and develop practical experience that can benefit them later in their careers.

At the same time, demand for teen workers is also under pressure. The industries that typically hire teenagers during the summer like restaurants, retailers, amusement parks, camps, hotels and other leisure operators are still dealing with higher labor, input and fuel costs. For small businesses, that can mean waiting to see actual demand before adding seasonal workers. AI and automation may also be playing a small but growing role, especially in routine entry-level tasks such as ordering, scheduling, inventory checks and basic customer service.

Importantly, weak teen hiring should not be interpreted as a clear sign that the consumer is rolling over. The consumer backdrop still looks bifurcated rather than recessionary. Higher-income households remain relatively resilient, while lower-income and more price-sensitive consumers are showing more strain. That split has also been visible in recent earnings reports, where higher-end companies have generally fared better than lower-tier, more price-sensitive businesses. Similarly, high-frequency services data do not point to a uniform pullback: air travel has softened because of higher airfare prices, but restaurant demand has been growing double digits.

From a broader labor-market perspective, teen employment is too small to move the headline numbers very much. As of April, employment among 16-to-19-year-olds was about 5.4 million, or roughly 3.3% of total employment. The teen labor force was about 6.3 million, or roughly 3.7% of the total labor force.

That means the unemployment rate math is very small. Holding the labor force constant, it would take roughly 170,000 additional unemployed workers to lift the unemployment rate by 0.1 percentage point. Challenger’s forecast implies teen summer job gains fall by only 11,000 versus last summer, from 801,000 to 790,000. Even if every one of those missing jobs translated into an actively unemployed teen, the mechanical impact on the unemployment rate would be only about 0.006 percentage point, far below anything that would move the headline number.

The income effect should also be limited. In the first quarter of 2026, full-time wage and salary workers ages 16 to 19 earned median weekly pay of $603, compared with $1,235 for all full-time wage and salary workers. In other words, teen earnings are less than half the overall median, further limiting the aggregate spending impact from softer teen hiring.

Bottom line

Teen summer jobs still matter a lot to the individuals who get them. They provide income, independence, and early workplace skills that can have long-term benefits. But from a macro perspective, this year’s projected weakness in teen hiring looks more like a structural and sector-specific pressure point than a recession warning or a meaningful driver of the overall employment report.

Economic and market conditions are subject to change.

Opinions are those of Investment Strategy and not necessarily those of Raymond James and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Past performance may not be indicative of future results.

Raymond James Chief Economist Eugenio J. Alemán discusses current economic conditions.

Yes, this time is different, but not because inflation itself is unprecedented. What has fundamentally changed is the macroeconomic starting point. Unlike the post-Global Financial Crisis period, when persistent disinflation and repeated downside surprises dominated policy decisions, the economy today is operating in a world where structural disinflation is no longer the default backdrop. That shift has important implications for monetary policy and, ultimately, for markets.

In the decade leading up to the pandemic, the Federal Reserve (Fed) adopted a deliberately patient approach to inflation, allowing price pressures to overshoot the target for extended periods before responding. That framework was a rational response to nearly twenty years of disinflationary forces ranging from globalization to technological change that continually pushed inflation below target. However, that same framework proved ill-suited for the post-pandemic recovery. With hindsight, the Fed should have begun tightening policy earlier as inflation emerged in 2021. But even if the Fed had increased rates immediately as it should have, it is highly unlikely that they would have been able to prevent the increase in inflation and contain Americans as they rushed to “living la vida loca” after years of sheltering in place and postponed consumption. In that environment, it is difficult to imagine an interest-rate level capable of meaningfully restraining spending without causing severe collateral damage to growth and employment. Policy was behind the curve, but the curve itself was unusually steep.

Standard policy benchmarks reinforce this point. Taylor Rule estimates suggest that monetary policy during the recovery was materially more accommodative than warranted, with implied policy rates at times approaching double digits (see graph below). Even under more conservative assumptions, prescribed rates were well above the levels actually in place, underscoring how far policy lagged shifting inflation dynamics. By the time liftoff finally began in early 2022, inflation had already surged close to 8% year over year, forcing the Fed into a far sharper tightening cycle than markets had anticipated.

Fast forward to today, and the policy landscape looks very different. The Fed is no longer constrained by the zero lower bound, and global disinflation can no longer be taken for granted. While fiscal expansion remains an upside risk to prices, the more immediate concern is that inflation has lost its pre-pandemic anchoring. Even setting aside tariffs and recent oil price increases tied to geopolitical tensions with Iran, inflation is no longer gravitating back toward the stable sub-2% environment that characterized the prior cycle. That reality sharply reduces the Fed’s room for patience.

Recent CPI, PPI, ISM price indices, and import price reports underscore this point. While April’s CPI included some one-off distortions – most notably in shelter costs linked to last year’s government shutdown – broader price pressures were evident across multiple categories. The PPI data are even more concerning, suggesting pipeline pressures that could bleed into consumer prices over the coming quarters. ISM prices indices, which are important forward-looking indicators, reached three-year highs in April, showing that input prices are affecting both manufacturing and service industries. Lastly, import prices experienced their largest monthly increase since March 2022, the period immediately following the onset of the Russia–Ukraine conflict. These reports do not demand an immediate rate hike, but they materially raise the odds that the policy discussion shifts from when cuts begin to whether further tightening may be required.

From a market perspective, this matters less for the next meeting and more for the trajectory of expectations. The longer inflation remains above target, the harder it becomes for the Fed to credibly signal an easing cycle, particularly in an environment characterized by expansionary fiscal policy, resilient growth, a gradual recovery in labor markets and sustained capital investment tied to artificial intelligence. Add continued energy price risks to that mix, and the bias of policy risk tilts meaningfully in one direction.

Bottom line

The rate conversation is set to intensify over the coming months. Markets are once again being forced to confront a world in which policy rates may stay higher for longer – or even move higher – rather than glide lower as soon as growth moderates. The arrival of a new Fed chair this month adds another layer of uncertainty, as shifts in leadership can influence both communication and policy direction. Taken together, the policy outlook is becoming more uncertain with fewer clear signals on the path forward.

Economic and market conditions are subject to change.

Opinions are those of Investment Strategy and not necessarily those of Raymond James and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Past performance may not be indicative of future results.

Raymond James Chief Economist Eugenio J. Alemán discusses current economic conditions.

A few days ago, a client shared a chart produced by a think tank or a bank economics group that tracked the performance of the S&P 500 over the past five to six decades (recreated and expanded above). Superimposed on the index were markers identifying each major military conflict involving the United States during that period. The message of the chart was hard to miss.

Despite repeated wars, equity markets have delivered strong long-term returns, and in some stretches, market performance appears to have coincided with wartime episodes rather neatly. Viewed through the lens of financial markets, the implication seems almost intuitive: wars have not been bad for investors and may even have been supportive.

This idea is not new. Many of the textbooks used in undergraduate and graduate macroeconomics feature similar historical charts, showing notably strong economic performance during periods when the US was engaged in military conflicts. Students would naturally connect the dots and reach the conclusion that wars must be good for economic growth. From an investor’s perspective, the leap is even easier: if growth is stronger during wars, corporate earnings rise, markets respond and risk assets benefit.

The temptation to accept that conclusion is understandable, but it misses the underlying drivers that matter most for markets. The historical relationship between wars and asset prices does not reflect the intrinsic economic value of conflict. Instead, it reflects the way fiscal policy behaves during wartime and how that policy feeds directly into growth, earnings and risk appetite.

The first crucial distinction is that US wars over the past several decades have been fought almost entirely outside US territory. Capital stock, infrastructure and labor markets at home remain largely intact. From a macro and market standpoint, that means the economy experiences the stimulus of higher government spending without suffering the offsetting destruction that would normally accompany war. Had these conflicts damaged domestic productive capacity, the market narrative would look very different.

The second, and arguably more important, factor for investors is fiscal behavior. Wars effectively suspend normal budget constraints. Policymakers, regardless of party affiliation, tend to authorize large increases in spending with limited concern for deficits, debt dynamics or future financing costs. From a Keynesian* standpoint, this is a textbook growth impulse. From a market standpoint, it translates into higher nominal demand, stronger top line revenue growth for firms tied directly or indirectly to government outlays, and a broader lift to economic activity.

This dynamic remains relevant today. The economy is already operating with a big amount of fiscal support, even before accounting for additional military spending related to the war in Iran. That war represents incremental spending layered on top of the fiscal expansion embedded in the One Big Beautiful Bill Act. This is a central reason we have not revised our growth outlook lower this year, even as households are expected to funnel much of their higher tax refunds into higher gasoline and energy costs rather than discretionary spending.

From a market perspective, the fiscal impulse does not stop there. The government is also scheduled to return roughly $170 billion in tariffs to firms over the course of the year, adding another channel of support for cash flow, margins and investment spending. Taken together, these factors create an environment in which nominal growth remains resilient, earnings risks are cushioned, and downside scenarios for risk assets are delayed, even if underlying fundamentals appear more fragile beneath the surface.

As a result, we arrive, somewhat uncomfortably, at the same conclusion that students and many investors reach when looking at historical data: Wars appear to be good for the US economy and for markets. The summary statistics reinforce this perception. Average growth during wartime has been higher than during non-war periods, and asset prices have tended to perform well alongside that growth. Markets respond to flows, demand, and earnings, not to philosophical debates about the social cost of conflict.

The deeper point, however, is that this outcome has far less to do with war itself and far more to do with the willingness of policymakers to spend aggressively. The US could, in principle, achieve similar growth and market outcomes by deploying comparable fiscal resources toward infrastructure, productivity enhancing investment or other domestic priorities. Wars are not growth positive because of what they destroy or defend, but because they justify spending on a scale that would otherwise be politically difficult.

For investors, the implication is both constructive and cautionary. As long as fiscal expansion persists, growth and earnings can remain supported, even in the face of higher energy prices, tighter monetary policy or weaker household balance sheets. But once the war effort winds down and fiscal impulse fades, the same forces that lifted growth and markets tend to reverse. Historically, economic momentum slows, earnings expectations reset and markets are left to reckon with the debts accumulated along the way.

In that sense, wartime economics often turns policymakers into short term Keynesians, while markets gladly price the upside. The longer-term implications, particularly for debt sustainability and future growth, are deferred until well after the immediate market narrative has played out.

*Keynesian economics is an economic school of thought based on British economist John Maynard Keynes, emphasizing that government intervention (fiscal and monetary policy) is necessary to stabilize the economy, particularly by boosting aggregate demand during recessions. It advocates active intervention to manage business cycles, such as deficit spending to reduce unemployment.

Economic and market conditions are subject to change.

Opinions are those of Investment Strategy and not necessarily those of Raymond James and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Past performance may not be indicative of future results.

Review the latest Weekly Headings by CIO Larry Adam.

• Key consumer and manufacturing data will offer clarity on the economic outlook
• ~44% of S&P 500 market cap will report next week – the busiest week of 1Q26 earnings
• The April FOMC meeting will garner attention as potentially Chair Powell’s last

The past few weeks have delivered a series of milestones for the equity market. The S&P 500 not only posted the fastest recovery to new record highs following a 7%+ drawdown but also crossed above 7,000 for the first time.

What comes next?

The index is on the verge of doubling for the first time in this bull market – currently up ~99% – a move that would take just under 3.5 years, slightly faster than the historical average of 3.9 years. While all sectors are in positive territory over this period, leadership has been narrow with only three – technology, communication services and industrials – posting gains above 100%.

History suggests this bull market still has room to run, as the average cycle lasts 5.6 years and generates gains of roughly 191%. The key question is the near‑term outlook for the economy and markets. We should get important insights next week with critical updates on the conflict in Iran, the economy, earnings and the Federal Reserve (Fed).

Below is what we are watching:

US-Iran conflict uncertainty

The recent ceasefire between the US and Iran – andthe resulting de‑escalation – has been a key catalyst for the rally in risk assets. That said, significant differences remain, including the status of the US blockade, Iran’s future control of the Strait of Hormuz and the duration of curbs on nuclear production, and negotiations have stalled. President Trump extended the ceasefire to allow Iran time to reach an internal consensus, and recent reports suggest the Iranian foreign minister plans to go to Islamabad this weekend. While both sides appear to be searching for an off‑ramp and an end to the conflict, we view the durability of the ceasefire as the most critical factor for markets. Even so, the risk of renewed escalation remains a meaningful tail risk, and the longer the Strait of Hormuz stays closed, the greater the potential for broader economic damage. The coming week will be pivotal for the conflict’s outlook.

Key economic data on tap

Economic fundamentals have remained resilient so far, even in the face of higher energy prices. This week alone, jobless claims held near multi‑decade lows, the retail sales “control group” rose at its fastest pace in seven months and credit card companies – including Synchrony Financial and American Express – highlighted steady spending across both high‑ and low‑income consumers. That said, several real‑time indicators we track are beginning to flash caution. TSA screenings have dipped negative on a year-over-year basis, restaurant bookings are flat and hotel occupancy is running below last year’s levels. The timing of the Easter holiday may be a factor, but these trends warrant close monitoring. Next week should offer greater clarity on the economic outlook. Consumer confidence (April) and PCE (March) will gauge household health and spending, while ISM Manufacturing (April), Durable Goods (March) and regional Fed surveys from Dallas and Richmond will shed light on factory activity. Building permits (March) will also provide an update on housing. While the economy should remain on solid footing, the longer energy prices stay elevated, the greater the risk to underlying fundamentals.

Busiest week of the 1Q26 earnings season

Beyond the de‑escalation in the US-Iran conflict, resilient corporate earnings have been a key catalyst behind the recent advance in equities. With ~24% of S&P 500 market capitalization having reported so far, fundamentals have reinforced investor confidence, as the 1Q26 earnings season has started on a strong note. Despite a higher bar coming into the quarter, ~83% of companies have beaten earnings-per-share (EPS) estimates by an average of 13%, the strongest beat rate and magnitude since 2021. Earnings season is set to accelerate next week, marking the busiest week of the 1Q26 reporting period, with ~44% of S&P 500 market capitalization scheduled to report. Given the recent strength in technology‑related sectors, we expect results from key tech leaders (Apple, Microsoft, Meta and Amazon) to confirm continued momentum in AI demand and investment, supporting our ongoing overweight to the technology sector. Meanwhile, reports from major consumer companies (Visa, Booking Holdings, Hilton and Yum! Brands) and Industrials (Caterpillar and FedEx) should offer valuable insight into the underlying resilience of the economy amid higher energy prices. While we believe corporate fundamentals remain solid, potential downward revisions to elevated forward estimates due to rising input costs could contribute to greater volatility in the weeks ahead.

Powell’s final meeting as Fed chair?

Next week’s April 28-29 Fed meeting is likely to be uneventful from a policy standpoint, with rates widely expected to remain unchanged and no updates to economic projections or the dot plot. The press conference, however, could draw outsized attention. Why? The April meeting is expected to mark Chair Jerome Powell’s final appearance after completing two four‑year terms. Now that the Department of Justice probe of Powell has been dropped, Kevin Warsh’s confirmation may move forward at a faster pace. Powell is still expected to remain chair on a pro tempore basis until his successor is confirmed. Attention will now likely focus on whether he plans to serve through the end of his governor term in early 2028. His remarks may also offer insight into how the Fed is factoring higher energy prices into its evolving inflation outlook. Although futures currently imply only a 31% probability of rate cuts in 2026, we continue to expect a single Fed rate cut this year, most likely in December.

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All expressions of opinion reflect the judgment of the author(s) and the Investment Strategy Committee and are subject to change. This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices and peer groups are not available for direct investment. Any investor who attempts to mimic the performance of an index or peer group would incur fees and expenses that would reduce returns. No investment strategy can guarantee success.

Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Diversification and asset allocation do not ensure a profit or protect against a loss.

The S&P 500 Total Return Index: The index is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Sector investments are companies focused on a specific economic sector and are presented here for illustrative purposes only. Sectors, including technology, are subject to varying levels of competition, economic sensitivity, and political and regulatory risks. Investing in any individual sector involves limited diversification.