A resilient economy faces higher costs.
Taking a closer look…
- Markets have recently been focused on elevated bond yields. Key drivers of rising bond yields include economic growth, inflation, and concerns related to growing government debt. For investors, higher bond yields provide an income boost to newly issued bonds. However, for businesses, they raise borrowing costs which could squeeze profit margins and hinder business expansion.
- Companies within the service industry are reporting rising costs. According to a recent report, prices paid for materials and services reached the highest level since July 2022.1 Higher gas and diesel prices have played a significant role by increasing transportation costs for businesses. If businesses pass on these higher costs to consumers, it may lead to more persistent inflation.
- Despite rising costs, the service industry remains resilient. Warehouses, restaurants, and insurers continue to report positive business activity. In fact, new orders, a reflection of future business conditions, remain near 4-year highs.1 Strong business activity and demand may suggest the US economy is on solid footing, which could help support corporate profits and market performance despite higher interest rates.
- Consumers may feel cautious about rising prices, but their spending tells a different story. The latest consumer sentiment surveys reflected less optimistic attitudes.2 Yet, over the last 12 months, consumer spending has been rising faster than inflation. This is noteworthy because consumer spending drives nearly 70% of US economic growth.3
Portfolio Manager, Strategic Advisers
“Corporate earnings season is upon us and projections indicate another stellar quarter. While optimism is high in the near-term, thanks to solid economic growth and significant AI spending, there is some healthy skepticism about whether this level of earnings growth can continue into 2027 and beyond.”
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For over 30 years, Strategic Advisers and its dedicated group of seasoned investment professionals have helped clients reach their financial goals. Our team of portfolio managers, with specialized areas of focus in asset allocation and specific asset classes, along with our deep quantitative and fundamental research, drive our investment selection and risk management decisions on behalf of our clients.