American families are facing another wave of price increases as inflation spikes again. In this month's Market Compass, we will explore what this latest round of price pressures might mean for you at home.

Starting with the basics. Headline inflation topped 4% in May, more than double the Fed's 2% target. In part, this reflects surging energy prices due to conflict in the Middle East. But even excluding these effects, price growth is up around 3% over the past year. Of course, this represents just the latest bout of high inflation, with average prices now up nearly 30% over the 2020s so far.

A meal out the cost $100 in 2019 now cost around $140. A $20,000 used car will now set you back more than $25,000, and ensuring that car back then would have come in at $1,000, compared to $1,500 today. High inflation may bring back memories of the 1970s, when runaway price growth averaged 7% annually over the decade.

Fortunately, we don't think we are heading back in time. The Fed is likely to keep interest rates elevated until it hits its inflation target, discouraging the dangerous wage price spirals seem back then. All in all, we expect inflation to cool back towards target next year as some of the present temporary factors pushing prices higher, such as oil prices, tariffs and AI bottlenecks start to ease.

However, it does appear that outbreaks of high inflation are becoming increasingly frequent amid growing geopolitical tensions, rising trade barriers and potential labor shortages too. We would not be surprised to see inflation remain volatile in the coming years. From an economic perspective, inflation spikes can hurt growth by weighing on household spending power and crimping corporate margins.

The economy has been impressively resilient in the face of these headwinds this year, helped by tax cuts, so we remain optimistic about the outlook. Absent a further spike in oil prices for households, rising prices can put a strain on personal finances and make their financial goals feel further out of reach.

What can you do to mitigate some of these headwinds?

First, careful budgeting and spending can help limit inflation's bite, especially during periods of temporary price spikes. It's also critical to account for inflation when planning for future expenses, such as a child's education or your retirement. Second, the spikes in inflation in recent years are a reminder of the damage that inflation can do to portfolios.

The returns on cash have fallen more than 7% over the decade so far and long term bonds have delivered even larger losses. This highlights the importance of investing cash over and above that which is needed for emergencies. Bonds are now pricing in higher inflation, offering some better protection even if these remain vulnerable to further upside surprises.

Meanwhile, equities can provide some insulation against higher inflation given the link between price growth and corporate earnings, even if they would struggle in the face of large price spikes too. But most important is to have a financial plan and long term investment strategy that is resilient to shifting economic and market environments.

The 2020s look very different to the 2010s, and speaking to a financial advisor can help you prepare for the 2030s and beyond. Thanks for joining us today, and we'll see you again next month with more market insights from Edward Jones.

Markets have entered the summer in a more volatile, but still supportive phase in our view. 

After a strong run, we're now seeing leadership begin to change and market swings increase, which is often the case as the cycle matures.

Here are three drivers to watch as we navigate the rest of the summer:  

1) Tech hits a speedbump  
Let's start with tech. Following a rapid two-month run, particularly in AI stocks, investors have become more cautious on the sector. The semiconductor index which at some point had doubled since the start of the year, is giving back some of the gains.

This move appears primarily driven by profit-taking following a parabolic rally, rather than any sudden setback in the AI narrative. Put simply, the group had moved too far, too fast.  
 
Elsewhere, dynamics have been improving, with early signs of rotation and broader participation. The equal weight S&P 500, small-caps and value have all been outperforming the broader market.  

2) Changes coming at the Fed  

Second, the Fed. June's Fed meeting was the first under Kevin Warsh, the new Fed Chair. Takeaways from the meeting contributed to the uptick in volatility.    

The committee no longer supports rate cuts with 9 of 18 officials expecting at least one rate hike this year. Warsh highlighted a strong commitment to getting inflation under control, leading markets to price in one rate hike by October. 

The new Chair also hinted on less frequent communication and less handholding for markets by not providing as much forward guidance. This likely means that the Fed may be more nimble going forward but less predictable. 

As a result, volatility around Fed meetings and inflation releases could increase. On the flip side, pressure on long-term yields may lessen if the Fed's inflation creditability improves.   

3) Drop oil prices bring relief   
Third, geopolitics, particularly its impact on energy. The recent Iran agreement has helped push oil prices lower. At around $75, oil prices have retraced about 90% of their March and April gains, helping bring relief at the pump.  

If this holds, there is a good chance that May likely marked the peak in headline inflation, providing breathing room for the Fed to stay on a prolonged pause.  

Putting it all together, markets are likely transitioning, not breaking down. We are moving:   

• From narrow to broader leadership 
• From suppressed to more normal volatility 
• From momentum-driven gains to a more balanced environment   

 That likely means some choppiness in the near term. But with the economy holding up and earnings still growing fast, pullbacks should be viewed as corrective, not trend-ending.  

For investors, the message is to review your individual goals, maintain diversification, and lean into the broadening opportunity, that we see ahead.

Check out our Weekly Market Wrap for the latest updates as we navigate the summer ahead.

Romaine Bostick, Bloomberg Television’s “The Close:" Mona Majan joins us right now, head of investment strategy at Edward Jones, and Mona, I think that is a big question for a lot of investors right now an opportunity maybe to buy into the dip, sort of a bet on that long term structural trade with regards to AI or finally time to run for the hills with your two year yield at 4.2%.

Mona Mahajan, Principal, Head of Investment Strategy, Edward Jones: Yeah, thanks Romaine and what a way to end the week. You know, overall I think there's two competing narratives in the market. One, of course, is the selloff in AI and the semiconductor index in particular. Now keep in mind that index has had a parabolic move higher and in fact, even after today's 8% selloff and this week's down movement, the semiconductor index overall is up over 70% year to date, so still a very healthy gain for investors that have joined this trade early on this year, the other narrative of course is around the labor market and the Fed, and I think that one is also interesting. The labor market was showing signs of really kind of a healthy rebound here. Job growth above expectations, unemployment rate steady, and by the way, a steady labor market usually implies consumption that continues to be steady, move higher, remain optimistic, you know, when folks are comfortable about their jobs, they tend to be more comfortable in spending.

Mona Mahajan: The other silver lining I will mention is that in that jobs report we didn't see any signals of a wage price inflation spiral, and that's something we were watching for. Wage gains looked relatively contained, so overall what we'd say is probably not a time to start chasing tech or AI here, but that broadening theme, which did start to show its head yesterday, we think still has some legs, and that means make sure you have exposure beyond the AI and tech theme as well.

Romaine Bostick: I am curious about that too. I mean, Katie was kind of talking about flows and maybe what we'll find out when we get, I guess, more actual hard data into next week, but there is a sense here that money isn't necessarily coming completely out of this market. We're seeing obviously today a bid into healthcare and consumer staples, utilities, some of those defensive sectors, and I am curious as to what that says about investor psychology that this is not a broad-based selloff. This is for the most part a tech selloff and to be.

Romaine Bostick: To put an even finer point on it, it's pretty much a sell-off of, as you said, probably the most parabolic moves that we had so far year to date.

Mona Mahajan: Yeah, absolutely, and you know, I think where we would be more worried or when we would be more worried is if we started to see cracks in the broader U.S. economy. And as we talked about labor market steady, consumption potentially steady, earnings growth still looking to be double digits for 2026, and by the way, positive across almost all 11 sectors. I think that is a good underpinning of the stock market broadly.

Mona Mahajan: Not a scenario where we would see a deeper prolonged bear market, which is why I think investors and investor appetite does remain intact. And so I think when you talk about buying the dips, we do think after a nice rally broadly in the market, we're up nearly 20% since the March 30th lows. We would have expected some period of consolidation, digestion, perhaps some market volatility, but barring or absent any deeper prolonged bear market, those are usually opportunities to add to investments and parts of the market perhaps you were not exposed to coming into this.

I do want to talk about the small caps a little bit because the Russell 2000, as I mentioned, down about 3.5%. We've been talking about this broadening. A lot of folks have given us their case for why that might extend down the size spectrum.

Katie Greifeld, Bloomberg Television’s “The Close:" Well, but you think about what we're seeing when it comes to the bond market pricing and not any, not any cuts in terms of what the Fed is going to do, but actually a full 0.25% rate hike priced in for 2026. What does this mean for some of those smaller companies in this economy that a lot of that bull case was kind of predicated on the fact that you were going to see interest rate relief?

Mona Mahajan: Yeah, it's a fair point. And look, I think the small cap space has outperformed large caps and even midcaps year to date, partly because, as you noted, of that rate story, small caps are highly leveraged, and so a move in interest rates does impact their balance sheets in an outsized way. But the other part of the story was the economy was holding in there, and this is a part of the economy that's very much levered to consumption and economic growth and a labour market that's steadying and by the way, without much.

Mona Mahajan: Wage price increases as well. Now what we'd say broadly is from our perspective we came into the year overweight, large cap, and midcap. We were a little more cautious. I mean still neutral on the small cap space exactly because of that. These companies tend to be more leverage. They also tend to have more what we call zombie companies or negative earners in that cohort as well. So we continue to like small, sorry, large and mid as a way to play that broadening theme.

Katie Greifeld, Bloomberg Television’s “The Close:" And I do want to get your thoughts on a headline we got in the past hour or so coming from the Financial Times that Mehta is considering a capital raise to the tune of tens of billions of dollars. You think about what Alphabet announced earlier this week, actually upsizing their own equity offering to about $85 billion not specifically on those companies necessarily, but it does seem that corporate America is actually now issuing more shares than they have in the past, that net equity issuance had been going down for a period of years, and maybe that dynamic is starting to reverse. I would love to hear your thoughts on how that actually affects the motion of markets and the end investor in this equity market.

Mona Mahajan: Yeah, it's an interesting point. And look, of course we're going to have no shortage of capital raises coming to the market in the next couple of weeks and couple months ahead, not only these large-cap mega Magnificent Seven names, but also of course the SpaceX's of the world coming in the next week or two as well. Overall, what we'd say is this is a trend we've been seeing throughout the year. It started with debt raises by a lot of these large tech companies. We know the theme for the next year and probably 2 years is all about CapEx spending, data center spending, and investing in these businesses. And so to the extent that these companies can raise capital in the public markets at a relatively benign or lower rate cost of capital than using existing cash on the balance sheet that you know probably makes sense from a capital market and capital structure perspective, but it does dilute existing equity and debt holders. And so we want to be cautious as we move forward. One, of course, we want to make sure that that what they're investing and spending in does have a return on that investment, and that's I think a lot of investors are focused on the return of that CapEx spending.

Romaine Bostick: Mona Mahajan, head of investment strategy at Edward Jones, on a very active Friday afternoon.

Hello everyone. I'm Mona Mahajan and welcome to the May Market Compass.

Now, as we know, markets this year have been robust. In fact, despite a near 10% correction in March and ongoing uncertainty around the Iran war and oil prices. Stocks are back at all time highs as of mid-May.

There's an old adage that says, “sell in May and go away.” Should investors take that approach this year? Well, overall, a lot of good news is reflected in the markets. And of course, we could see a period of sideways movement or consolidation of recent gains. But nonetheless, we don't yet see the conditions in place for a deep or prolonged downturn in markets. And as we know, time in the market is a better strategy than trying to time yourself in and out of the markets.

So no need to sell in May. Instead, stay invested, stay diversified, and keep an eye out for opportunities. Let's dive in.

What is driving the rally in stock markets?

The stock market has already had an impressive rally this year, despite higher oil prices, elevated inflation and geopolitical uncertainty. The S&P 500, a broad market index, is up over 8% this year and up a stellar 17% since the March 30th lows. Now, what's driving these games? We can point to two key factors.

First, there is some optimism that oil prices may moderate over time. In fact, the WTI oil futures curve is pointing to oil prices back around $80 by year end. Now, this may be driven by hope of some resolution to the ongoing war in Iran. But keep in mind, a prolonged war is not a good outcome for either side, and markets are aware of this as well.

And secondly, and perhaps more importantly, we have seen economic and earnings fundamentals hold up. In fact, the labor market has been resilient. Consumers continue to spend and earnings growth forecast have moved higher. If we take a look at this chart, we can see that 2026 earnings growth has been revised higher even through the Iran crisis period, which has been supportive of equities.

Now this has been driven by tech and AI and semiconductor earnings as well as better energy and materials earnings.

Is now a time to sell?

So the question many investors may have now is should we sell after this nice rally, we would highlight three key reasons why trying to time a market top is not the right approach.

First, we don't see a fundamental crack in the story. We know that market downturns tend to occur if there is a recession on the horizon, or the Federal Reserve is raising interest rates aggressively, neither of which we see for now.

Second, we know market timing is not an ideal strategy. Investors are not great at calling market tops or bottoms. And if you do sell, you have two decisions to make when to sell and then when to buy back in.

And finally, remember that we are also in a midterm election year. Historically, stock markets can move sideways ahead of midterm elections, but tend to rally after the November 7th election date passes as some uncertainty has been lifted.

What to do instead?

So overall, we don't believe in the sell in May and go away approach, especially as fundamentals remain solid and we could see some post-election seasonality. What do we suggest instead? Certainly we recommend staying invested in line with your personal risk and return goals, staying diversified across market caps and regions, and staying alert looking for quality investments at potentially better prices.

And with that, I thank you. And we'll see you right back here for the June Market Compass.

CNBC: For more on the markets, we are joined by Mona Mahajan. She is Edward Jones Head of Investment Strategy. And Mona, there's a lot of things to try and pay attention to these days to try and figure out what's coming next. Big gains that we've seen once again this week. What are you telling investors? Or maybe let’s start with what are investors asking you at this point?

Mona Mahajan, Edward Jones: Yeah, it’s a great question. Look, we are up about 16% through the period of the Iranian crisis. So investors are really coming to us and asking, one, why is this happening? And two, how much more can we see from here. So what we’re saying is, one, this is happening because earnings growth has surprised to the upside in a meaningful way. And even through the crisis, we’ve seen S&P earnings growth estimates go from 13% for the full year to 20%. So phenomenal rise there. And we know S&P returns are driven by earnings growth and valuation expansion—earnings doing the heavy lifting. Now the real question is, can we see more to come? What we say broadly is could we get a period of digestion, consolidation? Absolutely. But the old adage is bull markets don’t die of old age – something kills them. And we don’t yet see what that could be.

CNBC: Alright, that’s really interesting. A lot of people have kind of speculated that, look, it’s this idea that we are tamping down the fighting in the Middle East at this moment, that oil prices have come down significantly. But you’re kind of suggesting this lowering of concern about what’s happening in Iran is allowing the earnings picture to really shine through.

Mona Mahajan, Edward Jones: Yeah, I think that summarizes it well. I think, broadly, markets are forward-looking. We can see what they’re looking at in terms of where they see oil prices going down the road. And we know the futures curve is showing us oil prices back at $70 or so. And so we think there is some reversion to the mean in the prices right now. But more broadly we have not seen an earnings growth acceleration like this for many years. And in fact, the Q1 earnings growth that could be around 25% is the best we’ve seen since Q1 of 2021 – a post-COVID period where we had a really nice rebound. AI tech has been leading the charge, but so has energy and materials. And really what we want to do is make sure folks are participating both in the AI story and in the broadening of leadership story.

CNBC: So, what do you do on that front? I mean, energy prices have just come down significantly. I think WTI was down 7% yesterday. It’s down more than 2% again this morning – make that three and a third percent this morning. Is energy still a focus for you, even though we’ve come down from these highs? Do you anticipate that we’re going to be basically at higher levels for longer?

Mona Mahajan, Edward Jones: You know, we do think it will take some time for energy prices to moderate, the Straight to open and oil to flow through it. But what’s interesting is, actually, when we think about the long-term picture, we know economies are buffering their supplies. We know, for example, the UAE has left OPEC. We also know supply has never been an issue prior to the crisis. In fact, we were probably oversupplied. So we could get back to a backdrop where oil is well-supplied and prices could actually moderate to where we were before – even lower if supply-demand returns to equilibrium.

CNBC: Want to be in energy stocks at that point, if that’s the case?

Mona Mahajan, Edward Jones: Yeah. We’re neutral energy here – we don’t see an overweight position. We like more consumer discretionary and industrials, which can benefit from potentially lower oil prices but also better AI efficiency.

CNBC: That’s interesting. That’s the same story we heard from another analyst who was here earlier.

Was it Paul?

Yeah – Paul told us that earlier this morning. The same two areas: consumer discretionary and industrials. Neither one of you is looking at technology necessarily. Is that because we’ve just seen this massive run-up?

Mona Mahajan, Edward Jones: Yeah. Look, tech has had not only this year – the last three years – been the leader in returns. And if you weren’t in tech the last three years, you probably were not performing in line with markets. We do think as we think about the next 2 to 3 years, it probably won’t be the same leadership that takes charge, so we want to make sure we’re positioned where the future could lead us. All that being said, we remain equal-weight tech. We want to participate in this AI story. We don’t think we’re at the final innings of it – we think there’s still more to come. But over time, the productivity gains will flow to other sectors, and we want to make sure we’re participating.

CNBC: So you’re overweight in consumer discretionary and industrials.

Mona Mahajan, Edward Jones: Those are the two we like here. And I’ll say broadly from an asset class perspective, we like U.S. large-cap and mid-cap. We also like EM here. We think it’s an alternative to U.S. technology, which has seen a nice gain.

CNBC: emerging markets

Mona Mahajan, Edward Jones: Emerging markets. And then we could also see potential if it does well and there’s dollar softening and maybe one or two cuts down the road.

CNBC: Has it surprised you to see the market’s resilience through, as you said, up 16% since the Iran war?

Mona Mahajan, Edward Jones: You know, we have been surprised at the earnings resilience, and we can see the story there. What I’ll say broadly is – and we've talked about this in various formats – we know corrections are the norm. We had a huge run since the tariff tantrum through February of this year. And so, were we also due for a little bit of a pullback – yes – the uncertainty from the war provided – or the overhang of the war – did spark that pullback. But as you think longer term, we know there’s no incentive for either side of these two economies to want to continue this war. And so that’s where we hope the direction of travel is.

CNBC: Mona, thanks a lot.

Mona Mahajan, Edward Jones: Thank you.

Getting back to basics

Hello and welcome to the Market Compass. 

We’re only in April, and investors have already had plenty to contemplate in 2026.

Markets kicked off the New Year on the front foot, led by strong performance across smaller companies and international equities. However, this progress was derailed by the outbreak of war in the Middle East, with an associated surge in energy prices threatening to upset the global growth outlook.

The spike in volatility in recent weeks underlines the threat that geopolitics can pose to portfolios. While we are seeing positive steps towards de-escalation, we need to monitor risks in the Middle East carefully. Amid this noise, we should not lose sight of the growth and earnings fundamentals that were powering returns before this crisis, especially if tensions continue to ease.

Let's start with a rundown on how the Middle East conflict has impacted households and businesses so far. We have all felt the effect of higher gas prices at the pump. These and other price increases drove inflation nearly 1% higher in March, and further increases are likely on the way. This squeeze is weighing on household spending power and will crimp margins in the corporate sector too, providing a short-term headwind for growth.

However, oil prices are already well off their peak, and the market anticipates a steady decline through the rest of this year as disruptions to oil and other energy sources hopefully ease. Absent a renewed flare-up in the conflict and additional energy flow disruptions, the impact on inflation and growth should start to fade over the second half of the year.

Certainly, there will be some residual damage. We would expect some losses and write-downs in earnings growth expectations outside of the energy sector in 2026, reflecting the downgrades we are seeing in U.S. and particularly international GDP growth forecasts. However, even accounting for these adjustments, we still anticipate overall positive earnings this year.

In part, this still supportive backdrop reflects the strong-looking fundamentals heading into the latest inflation shock. These include broadening corporate profitability, lower interest rates, tax cuts and deregulation.

Many Americans will be enjoying larger tax refunds and smaller withholdings this tax season, while the recent decline in oil prices and potential easing in inflation risks have reopened the door to potential Fed rate cuts later towards the end of this year.

The upshot is that while geopolitical uncertainty is unsettling, we should not lose focus on other important market drivers. Unless we see a significant re-escalation in tensions, the 2026 oil shock will have only dinged rather than crashed the growth and earnings outlook for this year.

So, what does this all mean for investors?

For some, the sell-off seen in recent weeks might still present an opportunity to add to strategic allocations in bonds and equities at better price points.

For others, the latest geopolitical volatility provides a reminder of the benefits of staying invested, even as uncertainty increases. We know from history that time in the market is often a better strategy than timing the market.

Most of all, investors should look to ensure they have sufficient diversification in their portfolios to help cushion surprises and shocks as they emerge.

Check in with your financial advisor to figure out what moves might be best for you and review your investments to ensure they continue to align with your long-term financial goals.

Thanks for joining us today, and we look forward to seeing you again in May for our next Market Compass.

As we enter Week 5 of the conflict in the Middle East, developments involving Iran continue to shape headlines and drive market sentiment.

Markets will likely remain highly reactive to the incoming news flow – especially around geopolitical escalation risks and energy supply dynamics.

As the conflict stretches on, uncertainty has increased and the range of possible outcomes has widened. However, the base case likely remains one of eventual de‑escalation.

The key shift has been timing. What markets initially expected to resolve more quickly is now unfolding over a longer horizon.

The next pivot date to watch is April 6th. That's not just another date tied to a Trump ultimatum, it is also when the full complement of US ground troops - two Marine expeditionary units and the 82nd airborne – are expected to be positioned in the Middle East.

The other important date to watch is May 13th, the planned start to US-China talks between Trump and Xi.

We see the most likely outcome as a period of temporary stabilization sometime between those dates rather than a fast or definitive resolution.

While military options, including the use of ground troops, remain on the table, domestic political constraints suggest these assets are being used primarily as leverage and deterrence, not as a base‑case path forward.

For markets, that means continued sensitivity to headlines, ongoing risks tied to energy prices and shipping routes, and episodes of elevated volatility—even if the longer‑term trajectory ultimately trends toward de‑escalation.

In this environment, history shows that staying focused on long‑term investment objectives has tended to be more effective than attempting to time short‑term volatility.

Hello everyone, and welcome to the Market Compass. 

Markets remain on edge as the Iran conflict continues, with stocks moving in the opposite direction of oil prices. Recent attacks on Middle East energy infrastructure triggered the first 5% pullback in the S&P 500 this year, highlighting how sensitive investors are to rising geopolitical risk.

At the center of this story is a simple question: how long will the disruption last? Higher oil prices are clearly a headwind, but the economic and market impact will depend less on the initial spike and more on how persistent it proves to be.

Let’s start by zooming out to look at the backdrop.

Higher energy prices act like a tax on consumers. Every additional dollar spent at the pump is a dollar not spent elsewhere. At the same time, higher energy prices would push headline inflation higher and complicate the outlook for central banks.

So yes, the headwinds are real.

But it’s also important to keep perspective. In our view, this is not a 1970s-style energy crisis. There are a few reasons for that.

First, energy is a much smaller share of household spending than it used to be, with it being roughly 2% today versus about 6% back then. Second, the U.S. is far more insulated from a supply perspective than it was in past decades, as it has been a net exporter of oil since 2019. And third, today’s economy is much less energy-intensive overall, with services making up a far larger share of output than they did during the 1970s.

In other words, oil still matters, but it matters less than it used to. That doesn’t mean markets should ignore the shock. It just means that today’s economy is entering this period from a more resilient starting point.

To help frame the uncertainty, we’re thinking about three scenarios.

Our baseline scenario is for a sharp but short-lived spike. In this case, West Texas Intermediate Oil trades in roughly $90 to $100 range before moderating back toward $70 to $80 by year-end. Energy flows remain constrained through at least part of the second quarter but gradually improve after that. Under this outcome, inflation moves somewhat higher in the near term, growth slows potentially below trend, and the Federal Reserve still delivers one rate cut later this year. Treasury yields remain rangebound, and U.S. equities hold up relatively well.

In our downside scenario, oil rises to $120 or higher and stays elevated for several months. Growth slows more meaningfully, the Fed likely stays on hold this year, and the S&P 500 could see a correction of 5% to 15%.

In our best-case scenario, the conflict de-escalates quickly, oil falls back toward $70, inflation pressure proves temporary, and the Fed can cut rates twice in the second half of the year. That would likely support a rally in stocks, especially in more cyclical areas of the market.

Now let’s turn to the Fed.

The Federal Reserve is clearly in a difficult position. It must balance downside risks to the labor market against upside risks to inflation.

This month, the Fed left rates unchanged and emphasized the uncertainty surrounding developments in the Middle East. Importantly, it did not signal that the next move could be a hike. In our view, that suggests policymakers are still willing to look through a one-time energy-driven increase in inflation, at least for now.

The key variable to watch from here is inflation expectations.

So far, the rise appears concentrated in shorter-term measures, while longer-term expectations remain relatively well anchored. If that continues — and if the conflict proves short-lived — the broader disinflation trend should eventually resume.

So what does all of this mean for investors?

Our view is that while volatility may stay elevated, stronger fundamentals should provide a cushion. Consumers still have more income than they did in prior oil shocks, household debt burdens remain manageable, unemployment is still low by historical standards, and ongoing AI-related investment continues to support growth.

From a portfolio perspective, if oil prices remain elevated, the energy sector, U.S. large caps, and technology may offer relative resilience. If the disruption proves short-lived, leadership could broaden to include small caps, value, and international equities. In fixed income, inflation concerns may keep yields volatile in the near term. But if the 10-year Treasury yield moves closer to 4.5%, we would view that as an opportunity to consider intermediate- and longer-term bonds and lock in higher yields.

The bottom line is this: the current oil shock is a real risk for growth, inflation, and markets — but it is not necessarily a recession story. For now, the duration of the conflict remains the key variable, both for the Fed and for investors.

Bouts of volatility may create opportunities to rebalance portfolios, strengthen diversification, and add high-quality investments at more attractive valuations. For tailored advice for your specific situation, connect with your financial advisor.

Thanks for watching, and we look forward to seeing you next month for the Market Compass.

The current conflict in the Middle East is affecting energy markets, stocks, bonds, and currencies. And when uncertainty rises, markets tend to react. While no one knows how long the conflict will last or what its full impact will be, focusing on what we do know can help keep things in perspective. 

To help investors navigate this uncertainty, we suggest focusing on one ‘do’ and two ‘don’ts.’ 

The one ‘do’: 

Do pay attention to history. 
History offers valuable lessons. Markets have endured countless geopolitical shocks, and understanding those past patterns can help set realistic expectations today. 

And now the two ‘don’ts’: 

First, don’t play geopolitics with your portfolio. 
Reacting emotionally to headlines—especially during fastmoving global events—can come at a real cost. A fully invested strategy has tended to fare better than stepping to the sidelines for months while waiting for uncertainty to clear. 

Second, don’t lose sight of the big picture. 
The U.S. economy remains resilient, corporate profits are solid, and diversification continues to offer meaningful stability in volatile environments. 

Here are three key historical and structural factors that support this perspective: 

1. Over the past 15 years, various geopolitical shocks have led to shortlived oil spikes and limited market impact. Oil prices often rise ahead of geopolitical events and peak shortly after. For example, WTI peaked 11 days after Russia's invasion to Ukraine.
2. There have some structural shifts in the U.S. economy over the past couple of decades that have made it more resilient to oil shocks. First, the US has been a net exporter of oil since 2019 and secondly the energy intensity of the economy has fallen by 70% since 1950 because of greater efficiency and the dominance of the services sector.
3. According to the U.S. Energy Information Administration (EIA), the global oil market is currently experiencing a significant oversupply which helps create a buffer.

Your financial advisor can help you make sure you have a diversified investment strategy in place to help navigate any uncertainty that may lie ahead.

Over this past weekend, the U.S. and Israel launched a large scale attack on Iran, prompting Iran to respond with counter attacks against multiple cities in the Middle East. Now, first and foremost, we know that this is a human tragedy. And there is uncertainty both on how long this conflict can go and what the total loss may look like.

Nonetheless, as we help our clients navigate this geopolitical crisis will highlight three key points. First, we do believe the biggest impacts may be seen in oil and commodity markets. We have already seen WTI crude oil move higher, about 15% this year prior to the Iran conflict, and we saw about another 5% plus move higher after the conflict began.

Now, perhaps a mitigating factor here is that history tells us that oil spikes due to Middle East conflicts tend not to be long lasting, and we may even see some mean reversion. Number two, markets are reacting in line with expectations. Now while stock market futures are lower, they're not dramatically so. And we are seeing a modest flight to safety in gold and precious metals alongside the move higher in oil and energy.

But again history is on our side. Markets do tend to look past geopolitical crises and in a relatively short period of time. So this in fact may present some opportunities along the way. And number three, perhaps the key in these events that can create headlines swirl is staying calm, staying diversified and staying invested. We know playing politics with portfolios is never a great investment strategy.

And we do continue to see opportunities across markets and asset classes, including areas like cyclical and value sectors, and even in E.M. and parts of international equities.

Your financial advisor can help you make sure you have a financial plan and diversified investment strategy in place to navigate any uncertainty that may lie ahead.

Welcome to this edition of Market Compass in which we'll dig into the change in market leadership we are seeing in 2026 so far.

Giant technology companies have been the runaway market leaders over recent years. An investment in the so-called magnificent seven back at the start of 2023 would have more than tripled in value, representing an astonishing run, and far outpacing the returns in other parts of the market.

However, 2026 has been a different story. Tech companies are lagging the pack, with the same magnificent seven group down 6.5 percent year-to-date. Meanwhile, a more diverse set of companies across a wider range of sectors and regions have surged ahead. 

We think this rotation provides an important signal for investors. 

Improving economic and corporate fundamentals are creating attractive opportunities outside of the U.S tech sector—underlining the need for well-diversified portfolios to help take advantage of a broadening in market leadership. 

We'll dig into these fundamentals, but let's start by examining the recent tech wobbles. 

Critically, these don't seem to reflect deteriorating near-term earnings. Instead, after an incredible run, and with valuations elevated, investors are seemingly becoming more cautious for a couple of reasons.

First, we are seeing markets look to discriminate between the winners and the losers from the AI revolution. Software companies are the latest to struggle as investors weigh up the potential of AI to disrupt their business models.

Second, markets are baulking at some of the enormous investments pouring into AI infrastructure with an increased focus on the returns from these outlays. 

Against this backdrop, investors are seeing opportunities in cheaper parts of the market, with seemingly improving fundamentals. All eleven sectors of the S&P 500 are expected to deliver higher earnings this year, with many seeing double-digit gains.

A solid economic backdrop, tax cuts and lower interest rates are helping underpin this improvement.

Business investment is accelerating. While some of this strength reflects the AI data center boom, we are seeing signs of a broader pickup in capex spending, which is likely helped by the more favorable tax treatment of these outlays put in place in last year's tax bill. 

Similarly, we are seeing indications that the freeze in hiring over 2025 is thawing. Private payrolls growth is picking up through the turn of 2026, which is another signal that firms are feeling more upbeat. 

Importantly, a pick-up in hiring should help support ongoing consumer spending — the key engine of the U.S economy — as should the boost from last year's tax package which looks set to deliver $150 billion in tax refunds and lower withholding this year. 

Finally, the economy should feel the benefit from interest rate cuts last year and we continue to see scope from one or two more rate cuts, even if these might have to wait until some of the tariff driven inflation starts to fade in the second half of 2026. 

All-in-all, we think the economy looks in solid shape. And this assessment is seemingly shared by investors who have been moving into more cyclical stocks and smaller companies which tend to be sensitive to domestic growth and interest rates.

This is not just a U.S story. There are signs of improving global growth momentum, particularly in the cyclical manufacturing and trade sectors. Additionally, many economies overseas are set to benefit from looser fiscal policy, like Japan, lower interest rates like Emerging Markets, or even both—as is the case in the Eurozone. Finally, a further depreciation in the dollar has helped bolster returns from international equities for U.S based investors this year. 

Stepping back, we think the broadening in market leadership this year presents an opportunity for clients to diversify portfolios and ease concentration risks. We continue to prefer allocations across U.S large  and mid cap equities, international small and mid-cap stocks and emerging market equities too. 

Speak to your financial adviser to consider if you should look to broaden your investment horizons in 2026.

CNBC: Joining us now, Mona Mahajan, head of investment strategy at Edward Jones. Reading some of your comments, Mona, it’s like we're watching it play out, and I think you can give us some good insight. I mean, overall, the earnings that we’ve just seen – I guess we're about halfway through – used to think, I guess the estimate was 7%. It’s been more like 12%, but 30% in tech, which is pretty good. But in recent sessions we have seen traders or investors decide that maybe they should look elsewhere in terms of valuation. At least, that’s what it appears to be.

Mona Mahajan: I think it’s been a tough week for those investors that were exposed to the parts of the market that have really led to the upside. Think about technology, AI. But also more recently we’ve seen gold and precious metals sell off. We’ve seen the Bitcoin crypto space sell off. I’d say, broadly, if we take a step back, we still feel pretty good about the direction of the U.S. economy. We think it’s growing above trend. We feel pretty good – to your point about earnings – we think still double‑digit earnings this year, which underpins stocks. But we do think you have to start thinking about diversification more prudently, more seriously. Parts of the market that have held up well – value, cyclical, market caps in small‑cap and mid‑cap. And then, of course, when you look regionally, EM and international have held up better as well. So, there is an opportunity out there. We think it’s just a diversified opportunity.

CNBC: Valuation is never necessarily a reason to see an imminent sell‑off in anything. But in hindsight, after the sell‑off finally does happen, there were always some little clues. And you don't know what's going to cause it. Earnings might continue to be good, but it could be, well, there's this little wrench in the works here, or margins here, or something that you don't even know in hindsight what’s going to do it. But the bubble does – some air is coming out of all those leaders.

Mona Mahajan: Yeah. You know, I think it’s interesting. I think some of the business models are shifting. So certainly we’re seeing: could AI cannibalize itself in the software space? But also, a lot of the large‑cap tech space was asset‑light. It’s going from asset‑light to asset‑heavy. It was debt‑free; now we’re seeing more debt on the balance sheet.

CNBC: We're talking about that.

Mona Mahajan: So yeah, could margins get compressed a bit? Could valuation get compressed a bit more? I think there are question marks. The good news is growth is still tremendous. But the pace of growth – that second derivative – is slowing a bit.

CNBC: And then you mentioned earnings growth – double‑digit probably again this year. So if you were to assume that interest rates stay where they are or go down, you might not think there'd be a problem with multiples necessarily. So you could just say, all right, 15%, 12% earnings growth – that would translate to 12% in the S&P. But we can't guarantee rates are coming down. In fact, if inflation – if we’re underestimating that – we may not get any more rate relief, and rates could act on the long end, could actually go up like they have.

Mona Mahajan: Yeah. You know, look, I think new Fed chair in place in May – we will see what the direction of travel is.

CNBC: A hawkish Fed chair. More hawkish.

Mona Mahajan: Probably the least dovish out of the four options. But nonetheless, I do think there is a case still for one to two rate cuts this year. To your point, if inflation settles even around 2.5% or so, historically the Fed has tried to bring rates about 100 basis points lower.

CNBC: What if it doesn’t settle?

Mona Mahajan: If it goes to 2.5% to 3%, we still think a 3.5% fed funds rate makes sense here. To your point though, the long end is not controlled by the Fed – the short end is. And we could see a yield curve that starts to steepen. But all that being said, the U.S. economy has held up pretty well even in an environment where rates were probably 3.5% to 4%. So we think anything below that could support the consumer and support consumption of corporations as well.

CNBC: Played out. It… 1980, 1800. Okay, so I understand it goes up. Most years it goes up, but some years it actually closes lower. What could cause a down market this year?

Mona Mahajan: Yeah. You know, I think certainly when we look underneath the surface – to your point: S&P returns are driven by two factors – valuation expansion and what earnings growth does. If earnings growth, we think, is in that 10% range, that's fine. But multiple expansion — we think there are parts of the market that probably have more scope for expansion than others. And so probably value, cyclical could continue to perform well. If we see multiples come under pressure in the tech space, we could see a negative year – by the way, the first out of three years in the tech space. But we think parts of the market continue to hold up well. And we would look internationally a bit. We would look beyond just large‑cap.

CNBC: There’s always trade issues. China, Ukraine. I can worry about a lot of things – bird flu, I don’t know. There’s pandemics, there’s nuclear. There’s so many things – Iran – there’s a lot of things that…

Guest: Or you could slip and fall on the–

CNBC: Sidewalk. Or you could get killed by a vending machine. If you’ve got to get – you know, you put your money in and it's stuck. There’s a lot of things that can happen. You don't think… black swan – you have shark.

Mona Mahajan: Yeah. You know, look, unknown…

CNBC: Unknowns don’t come on land. Although there was a movie where they do, remember?

Guest: That shark tornado.

CNBC: Yeah. Sharknado. So it's possible – unknown.

Mona Mahajan: Unknown for sure. But look, I think the big picture here is: typically what causes a bear market is two things – one, a recession on the horizon; or two, the Fed raising rates rapidly. And neither of those seem in the cards for now. So I do think the backdrop to us still remains relatively benign. And so I think, to your point, a lot of headline noise, a lot of “squirrel” this year – politics, geopolitics – but the fundamentals are where we’re focused.

CNBC: Thank you.

This content is for general information purposes only and is not intended to predict or guarantee the future performance of individual securities, market sectors or the markets generally. Opinions expressed are as of the date of this report and are subject to change. This material is not directed to any specific investor or potential investor and should not be interpreted as a specific recommendation or investment advice. Investors should make investment decisions based on their unique financial situation.

Past performance of the markets is not a guarantee of future results. Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments will fluctuate and investors can lose some of all of their money. References to specific companies or securities should not be construed as a recommendation to buy or sell the security, nor should it be assumed to be profitable.

Hello, everyone, and welcome to the January Market Compass. Well, it's been about one month into 2026, and there's been no shortage of headlines, rising geopolitical tensions and policy uncertainty in the U.S. around the Fed, tariffs and government funding.

Nonetheless, for the most part, financial markets have remained resilient.

We're seeing positive returns for the S&P 500. And notably, there's been a bit of broadening in market leadership. Areas like small-cap and mid-cap stocks, value and cyclical sectors along with EM and international markets have all outperformed.

Now, what's driving this positive market backdrop? We believe markets are focused on the right fundamental drivers, namely positive corporate earnings growth, above trend economic growth and a favorable interest rate and tax backdrop. Let's dive in.

Since the start of the year, investors have been inundated by headline noise.

Geopolitical tensions in areas like Venezuela and Greenland have flared. And at home, we're watching for the nomination of a new Fed Chair, a Supreme Court decision on tariffs and a resolution around government funding. However, for long term investors, we believe it's important to tune out the noise and focus on what really matters for financial markets. We'll walk through three of these key factors here today: corporate earnings, economic growth and a better operating backdrop.

First, we believe U.S. corporate earnings are on pace to achieve double-digit growth this year. In fact, we have seen S&P 500 earnings growth revised higher to about 14.7% for 2026. Now, we know that stock markets are underpinned by earnings growth. And the good news is that this year corporate earnings are coming from a broad set of sectors.

Yes the technology sector is expected to see double digit earnings growth, but so are many other sectors supporting that broadening of market leadership as well.

Second, we see U.S. economic growth remaining above trend levels of one and a half to 2%. Now, as of mid-January, the Atlanta Fed GDPNow forecast called for Q4 economic growth to reach an impressive 5.3% annualized, driven by solid consumption and rising net exports.

Now, more broadly, we expect economic growth to continue to grow at or above trend levels in 2026, given the potential for lower interest rates and benefits from the U.S. tax bill.

Now, we know when the economy's on solid footing and the consumer remains resilient,

financial markets can perform well. Historically, it's when the economy is heading towards a downturn or recession that stock markets tend to fall more sharply. Now, this is not a scenario that we see on the horizon. Finally, we see the potential for a better operating backdrop for companies and households in 2026. Now, in our view, the Federal Reserve is likely to cut rates 1 or 2 times this year, bringing the Fed funds rate to around three and a quarter to 3.5%.

This would be supportive of better borrowing rates for consumers and corporations. In addition, the U.S. tax bill will kick in as well. And this likely means higher than average tax refunds for households this year. And for corporations, the tax bill offers benefits like an immediate deduction for capex spending. So this combination of lower rates and a better tax backdrop supports U.S. consumption broadly.

Overall, we think it's important for investors, like markets, to focus on the fundamentals and tune out the background noise in the headlines. And what we see for the year ahead is a relatively favorable backdrop: broadening corporate earnings, steady above-trend economic growth, lower interest rates and a supportive tax environment. Now we also know that there could be bumps along the way.

Markets don't rise in a straight line indefinitely, but investors can also use market volatility as an opportunity. Consider diversifying across sectors and asset classes, rebalancing investments and making sure you're aligned with your personal allocation goals. You can always speak to your financial advisor to help you come up with a plan that's best suited for your risk and return preferences.

And remember, a long term, diversified approach in any year, but especially one filled with headline noise, can help you stay on track for meeting your financial goals. With that, I thank you, and we'll see you right back here next month for the Market Compass.

Hello everyone, and welcome to our final Market Compass video for the year! I'm Angelo Kourkafas, and today we’ll look back at 2025, and share some of our key views for the year ahead.

It's been an eventful 2025. Trade policy uncertainty rattled markets early on, but stocks staged a V-shaped rebound to new highs, powered by heavy AI investment and stellar corporate profits.

Looking ahead, we expect another year of positive returns driven by steady economic growth, modest fiscal stimulus, likely more Fed easing, and rising earnings. But as we navigate now year four of this bull market, there are also potential risks, including periodic AI disappointments and lingering inflation. Let's dive into four key views.

Growth was bumpy in 2025 amid trade disruptions, a slowing labor market, and a prolonged government shutdown. Nonetheless, the economy grew about 2%, which is what we expect for 2026. 

We expect tax refunds will support consumer spending early in the spring. Also, favorable tax treatment of investment may encourage businesses to spend, while the AI buildout continues and trade headwinds fade. 

One factor that may act as a speed limit on growth is the labor market, as the low-hiring, low-firing      conditions persist. We expect job gains to improve slightly—around 50,000 to 100,000 per month—but still remain muted compared to recent years. A smaller labor supply, driven by the decline in immigration, should keep unemployment near 4.5%.

On the inflation front, tariffs have pushed goods prices higher, a trend that may persist early in 2026 before fading mid-year. The bigger story is services inflation, which makes up 75% of core CPI and is slowly moderating. Overall, inflation is likely to stay above the Fed's 2% target but improve slightly from 2025.

With the labor market cooling and price pressures still present, we think the Fed will aim for a 3% to      3.5% policy rate as it approaches the end of its easing cycle. If growth holds as we expect and the Fed cuts rates once or twice, the 10-year Treasury yield should stay rangebound near 4.0% to 4.5%. That could widen the yield advantage of bonds over cash, helping bonds outperform again in 2026.     

On the equity side, after three years of double-digit gains in the S&P 500 pushing valuations higher, 2026 will likely be all about earnings doing the heavy lifting. Returns may cool, but with no recession or Fed tightening in sight, we expect the bull market to keep going.

Leadership, however, could shift. In 2025, growth beat value, and tech and communication services dominated for the third straight year. AI should remain a major driver, but we see markets broadening—both within tech and beyond tech —with solid earnings across sectors and regions. We expect the gap between tech and other sectors to narrow in the year ahead, favoring a balanced approach. 

2026 looks promising, but risks like AI disappointments or lingering inflation could test the market's resilience.      

Investors can consider:

No. 1: Maintaining exposure to innovation and AI, but spreading risk. 

No. 2: Broadening your opportunity set to include mid-caps, cyclicals, and international equities.

No. 3: Using bonds for still-attractive income and portfolio stability.

No. 4: Reviewing excess cash allocations as yields decline with Fed rate cuts—weighing whether that cash could work harder elsewhere.

for tailored advice to your specific situation, connect with your financial advisor to help ensure your portfolio is positioned for success in the new year. And for a full look at our 2026 Annual Outlook, visit EdwardJones.com. 

Happy holidays, and we'll see you in 2026!

Hello and welcome to this month's Market Compass. My name is James McCann, I'm the Senior Economist here at Edward Jones, and I'm happy to be joining as one of the hosts of this monthly video series.
The year is almost over, and investors could be forgiven for a sense of whiplash they’ve experienced since the start of 2025 in the current economic climate.      

Earlier this year, we saw tariff negotiations played out in public, sparking renewed fears around inflation. A slowdown in hiring has triggered concerns around the labor market. We’ve heard warnings around a potential AI bubble. And most recently, we’ve contended with a record-breaking government shutdown. 
    
Against this backdrop, it isn't a surprise to see consumer confidence slump to a new low.

However, amid all this negativity, markets have delivered strong returns. The S&P 500 is up more than 30% from its April lows. This has been helped by large gains in technology stocks, while small caps have been getting in on the action, too. But this rally is showing signs of exhaustion. Investors are taking profits, and some are rotating away from the most highly valued parts of the market, like technology companies. That said, the markets are still well up on 2025 so far.

How can we reconcile the seeming contradiction between the gloomy news cycle and this solid market?

Well, I'd suggest three explanations.

First, despite the headlines, the economy remains resilient.

Businesses have so far adapted to higher tariffs. They’re adjusting their supply chains considerably to lessen the impact while absorbing the increase in costs in their margins. Despite this headwind, earnings reports this year have been stronger than expected, indicating that the firms remain highly profitable.
 
Meanwhile, households look well placed to manage a gradual uplift in inflation from tariffs. Rising asset prices, such as home values, 401(k)s and broker accounts, have helped boost the wealth of the household sector. This provides a buffer to help consumers weather shocks like inflation without pulling back materially on spending.

The upshot is that the U.S. economy is a tough nut to crack. Economists’ concerns about a potential recession over recent years have consistently proved too gloomy. This year has been no exception.  

Second, the Fed is taking its foot off the brakes.

Interest rates have fallen from their peak of more than 5% last year to around 4% now. We expect that to continue and should get down to around 3.5% next year.

This adjustment should help the U.S. economy. Lower rates encourage new borrowing and investment, while also lessening the burden of current debt.

Small-cap companies tend to benefit the most from these dynamics, which has been reflected in their strong performance in recent months, even if they have stumbled some.

Finally, markets don't always focus on short-term swings in the economy.

A good deal of attention this year has been centered on AI, the investment cycle powering its development and the expected long-term payoffs of this potentially transformative technology.

This theme has powered a 200% gain in the Mag 7 since ChatGPT was unveiled in late 2022, and it pushed the market cap of NVIDIA to about $5tn, which is larger than even the UK's annual GDP.

Bringing this together, a resilient economy, rate cuts and a burgeoning AI boom have all helped the market shake off the gloom this year.

As we look at 2026, it is certainly possible that we see some bumps ahead. Markets have moved a long way in a short time, stretching valuations and raising the risk of a near-term pullback. Recently, we have seen some signs of these dynamics in technology stocks. However, we think drawdowns could present opportunities to put cash that may be on the sidelines to work – especially with short-term interest rates moving lower.

But the economic narrative for 2026 does look brighter. Households seem set to enjoy larger refunds in April based on legislation passed this year, with businesses also benefitting from tax changes, particularly around their investment expenses. Meanwhile, rates are expected to continue to drift lower, and some of the negative impacts around shifting trade policy should fade. Overall, this appears to be a supportive backdrop for corporate earnings, with few signs of the AI investment boom slowing.

Given these fundamentals, it could be a good time to tolerate a little more risk in portfolios. Investors could consider turning up the dial on equity holdings, preferring a diversified mix of large and mid-cap US stocks, and international mid-cap and emerging markets. Conversely, investors could consider dialing down holdings of typically more defensive investments like bonds, especially following the large reduction in interest rates seen over recent years, which has lessened their attractiveness and lowered their return potential.

Speak to your financial adviser to determine what changes, if any, you might consider as we look ahead to 2026. Most of all, amid the swirl of noise around the economy, this year has taught us to stay calm, keep invested, and carry on focusing on our financial goals.

Thanks again for joining us, and we’ll see you here next month for our December Market Compass.

Hello, everyone, and welcome to the October Market Compass. Now, October is Halloween month, but does that mean it has to be spooky for investors. Historically, October is a more volatile month than average in stock markets. In fact, since 1950, research shows that there are more 1% or higher swings in October than any other month. 

This October, we have started to see signs of that volatility with the S&P 500 experiencing its biggest one-day drawdown since April earlier in October, near 3%. Now, that VIX volatility index, also known as the Wall Street fear gauge, had also inched higher closer to 20 levels after being in the mid-teens for the past several months. However, keep in mind, every year is unique and markets have been rallying steadily since mid-April, with the S&P 500 climbing over 30% without a 5%-plus pullback. 

So we could be due for a period of consolidation or some profit taking after a nice run higher, and the markets certainly have had several challenges or walls of worry to climb in recent weeks, including the extended tariff uncertainty, especially between the US and China, which weighs on consumer prices and inflation, the ongoing US government shutdown, which also weighs on economic growth each week it continues, and of course, some emerging concerns around the credit quality of smaller US regional banks, which seem contained for now but are worth monitoring closely. 

Now, despite the building concerns, we don't see a pullback or correction turning into a deep or prolonged bear market. Now, why is that? Well, there are some positive momentum factors as we head into year end and into 2026. First, the Fed is likely to continue cutting rates, which should support both the consumer and economic growth. 

Second, the US tax bill should kick in next year, which is supportive of companies spending on CapEx and R&D. And finally, corporate earnings growth continues to deliver. In fact, the expectation is that S&P 500 earnings growth will grow about 11% this year and accelerate to about 13.5% in 2026, driven by both tech and non-tech sectors. 

Now, overall, if we do experience a pullback in the weeks ahead, there are ways that investors could likely take advantage. We recommend considering three actions. Number one, rebalancing. As equity markets rallied, parts of portfolios may have grown beyond what was originally intended. For example, a balanced portfolio with 60% equities and 40% bonds may now be much more heavily weighted in equities. So this is a good opportunity to consider rebalancing this portfolio to get aligned with the desired equity and bond risk balance.

Number two, diversifying. Now, given the outsized rally in a few key sectors, including technology and AI, investors may want to consider diversification in their portfolios, especially into those parts of the market that have some more scope for catch up. Now, this could come by trimming gains in winners and reallocating or by putting new money to work as well. 

And number three, adding quality investments. Now, if markets do experience a correction or pullback, investors should consider being prepared. Have a list of potential quality investments that align with your strategic allocations ready in order to use market corrections as opportunities to add to portfolios. While regularly using dollar cost averaging to make investments is an established strategy, there may be times that call for more opportunistic investments. 

So while October has the potential to bring some scary market uncertainty if investors are prepared, volatility can become an opportunity. If you need guidance, talk to your financial advisor about strategies like rebalancing, diversifying, and adding quality investments at better prices. They can be your best resource to help make sure your investments are aligned with your personal long-term financial goals. And with that, I thank you, and we'll see you right back here for the November Market Compass. 

From renewed trade tensions with China to the ongoing government shutdown and worries around an artificial intelligence bubble. Recent headlines have triggered some volatility as we navigate the last quarter of the year. But here is what's important. Corporate earnings continued to grow, and consumer spending remains resilient even as the labor market has softened. The government shutdown will likely slow economic activity temporarily, but growth is likely to rebound once funding resumes.

In markets, Tech continues to lead, driven by heavy investment in artificial intelligence. While valuations are elevated relative to history, they remain below the extremes of the early 2000’s. Tech bubble and earnings continue to deliver. And with the fed likely to continue easing rates, we could see market leadership broaden, creating a favorable backdrop for equities. October is known for volatility, especially with markets near all time highs.

After one of the strongest six month rallies since 1950. Some consolidation of the recent gains is natural, but volatility isn't a reason to panic. It's a normal part of investing in times like these. Staying focused, diversified and grounded in long term fundamentals is more important than ever. Stay informed with our weekly market wrap at edwardjones.com

Hello, everyone, and welcome to the Market Compass. We are heading into the final stretch of the year, and both equity and fixed income markets are holding up well, thanks in large part to growing expectations for lower interest rates. 

In September, the Federal Reserve turned a page in its rate-cutting cycle. While the easing technically began last year, it hadn't gained much traction in 2025 until now. What changed? Mounting signs of a cooling labor market have shifted the Fed's focus from inflation to employment, prompting a renewed push towards easing. In this episode, we'll break down what's driving interest rate expectations and what it could mean for your portfolio. 
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Let's start with the labor market. The biggest shift in the Fed's thinking has come from signs of a softening labor demand. The unemployment rate is still relatively low at 4.3%. But job openings have now dipped below the number of unemployed workers for the first time since 2021. That's a signal that employers are becoming a bit more cautious. 

Other data points reinforce this trend. Payroll revisions showed that, over the past year, the economy added about 900,000 fewer jobs than previously thought. And weekly jobless claims have been slowly ticking up. 

Despite these signs of weakness, we don't expect a sharp deterioration. And why is that? First of all, slowing immigration is reducing labor supply, helping keep unemployment low. And also, labor data tends to lag market developments. The recent softening may reflect fallout from peak trade uncertainty earlier this year. As that fades and profit growth remains solid, hiring could rebound. 

While the labor market has taken center stage, inflation hasn't disappeared. In fact, it started to tick higher, but not alarmingly so. August inflation data came in about as expected. Tariff-related price increases have been moderate. And while goods prices are rising, we haven't seen a major spike. 

Services inflation, which makes up about 75% of the core inflation basket, is still trending lower, though progress has slowed. One potential upside of a cooling labor market is slower wage growth. Since wages make up roughly 70% of service sector costs, this could help inflation stay in check. The bottom line-- we don't see a repeat of the 2022 style inflation surge that if related pressures should be temporary and the broader inflation outlook remains manageable. 

So what does all this mean for Fed policy? The combination of labor market softness and manageable inflation suggests the Fed may not want to keep interest rates in restrictive territory for much longer. Most Fed officials view 3% to 3 and 1/2% as a neutral rate, basically where policy neither stimulates nor restricts the economy. We believe the Fed is now easing toward that neutral zone. And markets are already pricing in that shift. 

In past cycles, the market's response to Fed easing, depending on whether the rate cuts were preemptive, what we often call insurance cuts, or reactive, insurance cuts like those in 1995, 1998, and 2019 aim to support the economy before clear signs of trouble. They also tend to be bullish for equities. 

On the other hand, recession-driven or reactive cuts, like those in 2001 and 2007-2008, often coincide with poor risk sentiment and weak market returns. Today's backdrop suggests an insurance cut. While labor demand appears to be cooling, the unemployment rate remains low, and corporate profits and the economy continue to grow at a healthy pace. 

From a portfolio standpoint, which areas might be the potential beneficiaries? We think rate-sensitive and cyclical sectors such as consumer discretionary could be one, also, potentially, mid-cap stocks, which offer exposure to growth without the volatility of small caps, and also emerging markets, which could benefit from a weaker US dollar as other central banks have or already are close to approaching a neutral stance. 

On the fixed income side, the renewed easing bias is already helping. The 10-year Treasury yield has dropped to the low end of our expected range of 4% to 4 and 1/2%. While inflation and debt concerns may limit how far long-term yields fall, intermediate-term bonds still offer attractive yields in our view. 

Lower rates should help sustain the positive momentum in markets. But, of course, let's not forget, markets rarely move in a straight line. Expectations are high, and September and October tend to bring some seasonal volatility. We view any pullbacks as buying opportunities, especially with the potential for growth to reaccelerate in 2026. 

Tax cuts, deregulation, and lower rates could all work together to support the economy. As always, your financial advisor is a great resource to help ensure your portfolio is well diversified and aligned with your long-term goals. Thank you for watching, and we'll see you next month on the Market Compass. 
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