What breadth problem? The US economic engine is a “four-banger,” driven by consumption (68%), investment (18%), government (17%) and trade (-3%). Fortunately, three of the four cylinders of our growth machine are humming.
According to the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) accelerated from a seasonally adjusted annual rate (SAAR) of 0.5% quarter-over-quarter (Q/Q) in 4Q25 to a SAAR of 2.0% Q/Q in 1Q26. Despite all the shocks, we remain in a solid 2% economy.
The contributors to sequential real GDP growth were business investment [1.5 percentage points (ppts)], exports (1.3 ppts), consumer spending (1.1 ppts), as well as government spending and investment (0.7 ppt). Imports, which subtract from GDP, also increased (see the chart below).
Three of the four cylinders of our growth machine are firing
Sources: BEA, WCG, 5/5/26. Notes: GDP = Gross domestic product. Q/Q = Quarter over quarter.
Aren’t imports a gauge of domestic demand? Yes. That’s why we look at “real final sales to private domestic purchasers,” which add imports to GDP and subtract exports, the change in private inventories, as well as government spending and investment from GDP. In sum, personal consumption expenditures and private fixed investment increased at a stable pace of 2.5% Q/Q in 1Q26 – even stronger than headline GDP suggests – compared to a gain of 1.8% Q/Q in 4Q25.
Where’s the bright spot on the economy? Artificial intelligence (AI) and related business spending. As my regular readers know, business capital expenditures (capex) on information processing equipment and software aren’t just a dream. They’re real and have already had a significant positive effect on the US economy. Business investment in information processing equipment and software added a record 1.3 ppts to real GDP growth in 1Q25 (see the chart below)!
AI: The force that could extend and ultimately end the cycle
Sources: BEA, FRED, WCG, 5/5/26. Notes: Gross private domestic fixed nonresidential investment.
How are technology-enabled companies doing? Last week, five of the “Magnificent Six” (M6) companies – representing about $22 trillion of market value or roughly one third of the S&P 500’s total market capitalization – delivered “double beats” and across-the-board double-digit growth (see the tables below).
According to FactSet, Meta Platforms, Alphabet and Amazon.com reported positive earnings per share (EPS) surprises that were the largest contributors to the S&P 500’s remarkable EPS growth acceleration in 1Q26. Overall, four of the top five contributors to S&P 500 EPS growth in the same time frame are M6 companies: Meta Platforms, Alphabet, Amazon.com and NVIDIA (which reports its results on May 20, 2026).*
A big week for “Big Tech:” Across-the-board “top-line” beats and double-digit growth
Sources: Seeking Alpha, WCG, 5/7/26. Notes: T = Trillions. B = Billions. Y/Y = Year over year.
- Alphabet (GOOGL) gave the biggest surprise of the M6 with actual EPS of $5.11 and a massive $2.48 beat. The company’s stellar results included an incredible 82% Y/Y increase in EPS and 22% Y/Y revenue growth.
- Amazon.com (AMZN) delivered a similarly strong performance with a whopping $1.14 EPS beat, a 75% Y/Y gain in EPS and revenues that grew 17% Y/Y to $181.52 billion, more than any other company in the world!
- Meta Platforms (META) led the group with top-line growth of 33% Y/Y and produced a $0.49 EPS beat, as well as robust EPS growth of 14% Y/Y.
- Microsoft (MSFT) and Apple (AAPL) maintained double-digit growth. Microsoft’s EPS rose 23% Y/Y on revenue growth of 18% Y/Y while Apple’s EPS gained 22% Y/Y on 17% Y/Y revenue growth.
A big week for “Big Tech:” Across-the-board “bottom-line” beats and double-digit growth
Sources: Seeking Alpha, WCG, 5/5/26. Notes: GAAP = Generally Accepted Accounting Principles. EPS = Earnings per share.
How’s your “tech enablement” thesis playing out? I still think the tech sector has an important role to play. Specifically, tech itself should enable a broader market via the efficiency gains captured by the “Léger Productivity Index” (LPI), which divides nominal S&P 500 sales by private payroll employment.
- Index Stability: With market capitalizations ranging from $1.56 trillion to $5.05 trillion, the financial health of the M6 heavily influences the direction of the major indices. The ability of these companies to deliver consistent “double beats” raises the floor under market valuations and ratifies our unwavering bullish stance on the tech sector.
- “Multiplier” Effect: The growth in cloud infrastructure (Microsoft, Alphabet, Amazon.com) and digital platforms (Meta) suggests that other sectors – such as retail, finance and logistics – are continuing to invest in digital tools to boost their margins.
- Capex Cycle: Strong revenues and earnings growth often lead to strong business spending growth. Booming investment in infrastructure, hardware and software can create a “ripple” effect, benefiting semiconductor manufacturers, construction firms and service providers.
Bottom Line: According to FactSet, seven sectors are now reporting double-digit earnings growth in 1Q26, led by communication services (53% Y/Y), information technology (50% Y/Y) and consumer discretionary (39% Y/Y).*
In the same time frame, S&P 500 companies are enjoying faster EPS growth now (27% Y/Y) compared to the end of last week (15% Y/Y) and on March 31, 2026 (13% Y/Y). At this pace, 27% Y/Y could prove to be the highest water mark since 4Q21 (32% Y/Y) and the sixth consecutive quarter of double-digit earnings growth for the index.*
“Léger’s Law of Dynamic Optimism” states that the path of least resistance remains up for stocks. We’ll compare notes at the end of 2026, but it’s quite possible that our earnings forecast of $320 isn’t bullish enough. In the meantime, enjoy the rally and don’t wait for the Strait!
*FactSet, Three “Magnificent 7” Companies Push S&P 500 Earnings Growth to Highest Level Since 2021, May 4, 2026.
Recent and relevant Market Strategy Flashes:
Doing More With Less: Why S&P 500 Employees Are 3x More Productive Than the Average US Worker, February 6, 2026
Profit Paradox: Why Slow Hiring Boosts the S&P 500, January 16, 2026
Technology itself should enable a broader market, October 24, 2025
AI: The force that could extend and end the cycle, October 8, 2025
Productivity: The silver lining of meagre job growth, October 3, 2025
AI revolution: Boosting productivity, expanding margins, August 8, 2025
From beta grazing to alpha hunting, June 13, 2025
The silver lining of slowing payroll growth, November 5, 2024
Definitions
The S&P 500 is an index that tracks the stock performance of 500 of the largest companies listed on exchanges in the United States. Indices are unmanaged and cannot be invested in directly.
The Russell 2000 is a market capitalization-weighted index that measures the performance of approximately 2,000 small-cap companies in the United States. It is often used as a benchmark for the health of the domestic small-cap equity market. Indices are unmanaged and cannot be invested in directly.
The Russell 3000 is a capitalization-weighted index designed to measure the performance of approximately 3,000 of the largest U.S. publicly-traded companies and is commonly used as a broad measure of the U.S. equity market. Indices are unmanaged and cannot be invested in directly.
The MSCI ACWI ex USA IMI is an index designed to measure the performance of large-, mid-, and small-cap companies across developed and emerging markets, excluding the United States. Indices are unmanaged and cannot be invested in directly. (106-LPL)
West Texas Intermediate (WTI) is a crude stream produced in Texas and southern Oklahoma that serves as a reference or “marker” for pricing a number of other crude streams. WTI is traded in the domestic spot market at Cushing, Oklahoma.
Heavy and Sour Crude Oil: “Heavy” refers to the density of the oil, while “sour” refers to a higher sulfur content. These types of crude require more complex and expensive refining processes compared to “light” or “sweet” crude, which contain less sulfur and are easier to process or refine into gasoline.
Fundamentals are company-specific financial measures such as revenues, earnings, cash flows, balance sheets, and valuations, which may be based on reported results and/or analyst estimates.
A free cash flow (FCF) yield is a valuation metric commonly calculated as free cash flow (often operating cash flow minus capital expenditures) divided by market value (or FCF per share divided by price). Definitions and calculation methods can vary.
A P/E is the ratio of a company’s current share price to its earnings per share (EPS). The P/E ratio is a popular financial metric used by investors and analysts to value a company and determine if its stock is overvalued (high) or undervalued (low).
Value is a broad investment concept that seeks to assess whether a security is priced above or below its fundamental characteristics, which may include earnings, cash flows, sales, or balance-sheet measures.
S&P 500 SPS measure the total sales generated by 500 of the largest publicly-listed US companies divided by the number of their shares outstanding.
S&P 500 operating EPS is income from product (goods and services), excluding corporate (M&A, financing, layoffs) and unusual items.
The S&P 500 net profit margin is equal to US large-cap companies’ operating EPS divided by their SPS.
The WCG Margin Indicator is total business sales (Y/Y) minus total nonfarm payrolls (Y/Y).
The PPI measures the average change in prices received by domestic producers of goods, services, and construction sold to end users.
The CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of goods and services.
A P/E-to-growth or PEG ratio compares a stock’s or index’s trailing 12-month operating P/E to its 5-year compound annual EPS growth rate. Rule of thumb: If the P/E is equal to or less than the earnings growth rate, you may have found a bargain.
In finance, trailing four quarters (T4Q) refers to the data from the four most recently completed quarters, viewed as a single 12-month period.
Productivity, or output per hour, is real output divided by hours worked by all employees.
The WCG S&P 500 productivity proxy is S&P 500 aggregate US dollar sales divided by nonfarm private payroll employment.
Unit labor costs or productivity-adjusted compensation costs are the ratio of hourly compensation to labor productivity.
GDP is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.
A capital expenditure (capex) is the money a company spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. Unlike daily operating costs, these are long-term investments intended to provide a benefit to the business for more than one year.
Core capital goods orders are manufacturers’ new orders for nondefense capital goods excluding aircraft. They are a proxy for business capex.
The Federal Reserve Board estimates capacity and capacity utilization for industries in manufacturing, mining, and electric and gas utilities. For a given industry, the capacity utilization rate is equal to an output index (seasonally adjusted) divided by a capacity index. The Federal Reserve Board's capacity indices attempt to capture the concept of sustainable maximum output – the greatest level of output a plant can maintain within the framework of a realistic work schedule, after factoring in normal downtime and assuming sufficient availability of inputs to operate the capital in place.
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) is based on a monthly survey of supply chain executives at over 400 manufacturing companies across 18 industries. It is an economic indicator that tracks the health of the industrial sector in the United States.
The Intercontinental Exchange (ICE) US Dollar Index (DXY) is a leading benchmark that measures the value of the United States dollar relative to a basket of six major world currencies, the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), and Swiss Franc (CHF).
The Commodity Research Bureau (CRB) Raw Industrials Index tracks the prices of basic, unrefined materials used in the early stages of production. It focuses on 13 sensitive commodities that aren’t traded on futures exchanges, making it a unique gauge of pure, physical demand in the global economy. Its components are copper scrap, lead scrap, steel scrap, tin, zinc, burlap, cotton, hides, print cloth, rosin, rubber, tallow, and wool tops.
The WCG Macro Momentum Indicator (MMI) is a composite of the ISM Manufacturing PMI, the ICE US Dollar Index (inverted), the CRB Raw Industrials Index and mining capacity utilization.
The University of Michigan Consumer Sentiment Index measures consumer expectations about the US economy, personal finances, business conditions and buying conditions.
The unemployment rate (UR) calculates the number of unemployed as a percentage of the total labor force or the number of employed and unemployed. A low unemployment suggests a strong labor market. The opposite is also true.
The NBER defines a recession – the vertical gray bands in all the charts in this report – as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Recessions are the periods between peaks and troughs of the business cycle.
Economic Moat is a term that refers to a company's ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.
The Federal Reserve is the central banking system of the United States. Established by Congress in 1913, its primary purpose is to provide the nation with a safe, flexible and stable monetary and financial system. It is considered an independent agency within the government, accountable to Congress.
Standard deviation and standard error are historical measures of the variability of an asset’s returns or valuations relative to its average return or valuation. If an asset has a high standard deviation, its returns have been volatile. A low standard deviation indicates returns have been less volatile.
A correlation coefficient indicates the strength and direction of a linear relationship between two variables, expressed as a number between -1 and 1. -1 is a perfect negative correlation, 0 is no correlation, and 1 is a perfect positive correlation. Essentially, it tells you how closely two variables tend to move together.
A normal distribution, often called a normal curve or bell curve, is a continuous probability distribution that is perfectly symmetrical around its center.
A log-linear regression is a statistical method that models the relationship between a variable and time by applying a logarithmic transformation, often used to analyze long-term growth trends.
The natural logarithm (often written as ln) is a logarithm that uses the mathematical constant e as its base. While most common logarithms (like those used on calculators) use base 10, the natural logarithm is used extensively in calculus, physics, and finance because it describes growth and decay in a way that aligns with how nature actually functions.
AI is computer systems designed to perform tasks that typically require human intelligence, such as pattern recognition, prediction, and decision support.
Machine Learning (ML) is a subset of AI that uses statistical techniques and algorithms to allow systems to learn patterns from data and improve performance over time without explicit programming.
Agentic AI / AI Agents are software systems capable of autonomously executing tasks, gathering information, and performing actions based on predefined goals or instructions.
A Relative Rotation Graph (RRG) is a visualization tool developed by RRG Research that displays the relative strength and momentum of different assets (like sectors) against a benchmark (like the S&P 500). The “momentum line” helps identify whether a sector is currently outperforming or underperforming the broader market's rate of change.
Diversification is the practice of allocating investments across different sectors, styles, regions, or factors to help manage risk.
Factor investing is an investment approach that seeks to explain stock returns through exposure to specific characteristics such as value, momentum, quality, volatility, or trend.
Risk management is the process of identifying, measuring, and managing potential investment risks through techniques such as diversification, position sizing, and portfolio construction.
Technical analysis is a market discipline that considers price and/or volume behavior. Technical indicators may change quickly and can generate false signals.
Price is the market value of a security as determined by supply and demand at a given point in time.
Volume is the number of shares or contracts traded over a specified period.
In technical analysis, market breadth measures the number of stocks participating in a price movement. Healthy market breadth occurs when a majority of individual stocks (rather than just a few large companies) are moving in the same direction as the overall index.
In technical analysis, a trendline is a straight line drawn on a price chart that connects a series of pivot highs or pivot lows to show the prevailing direction of an asset's price.
In technical analysis, support and resistance are basic floor and ceiling concepts used to identify key price levels on a chart.
In technical analysis, a breakout occurs when an asset's price moves decisively beyond a predefined level of support or resistance.
In technical analysis, seasonal tailwinds are predictable, recurring market conditions tied to specific times of the year that provide a “push” to an asset’s price. Unlike a sudden news catalyst, these are favorable trends that analysts expect based on historical data, much like a tailwind helps an airplane move faster with less effort.
Flows capture net buying or selling activity into or out of securities, asset classes, or investment vehicles, often reflecting investor behavior and positioning.
A 200-day moving average is a technical indicator that calculates the average closing value of an asset, stock or index over the last 200 days.
DMI is a trend-strength gauge that compares buying pressure versus selling pressure to help show whether prices are trending up, down, or sideways.
ADX summarizes how strong the trend is.
MACD measures the strength of a stock’s or index’s momentum. It compares a short-term trend to a longer-term trend to show whether momentum is building or fading, and whether it’s leaning bullish or bearish.
Mean reversion is a concept suggesting that prices or returns may move back toward longer-term averages over time, an outcome that is not guaranteed.
Quality is a broad investment characteristic often associated with profitability, balance sheet strength, earnings stability, and operational efficiency.
Momentum is a market concept that refers to the tendency of securities or asset classes that have performed well (or poorly) in the recent past to continue performing similarly over shorter time horizons.
Low volatility is a characteristic of investments that historically exhibit smaller price fluctuations compared to broader market benchmarks.
Bloomberg is a privately held global financial technology and media company that provides real-time financial data, analytics, trading tools, and news to financial professionals worldwide.
The BLS is a unit of the U.S. Department of Labor. It is the principal “fact-finding” agency for the federal government in the fields of labor economics and statistics. It collects, analyzes, and publishes data about the U.S. economy and labor market.
The EIA is the primary statistical and analytical agency within the US Department of Energy (DOE). The EIA is responsible for collecting, analyzing, and disseminating independent and impartial energy information.
OPEC+ is an expanded alliance of oil-producing nations that works together to coordinate global crude oil supply and stabilize prices. It consists of two main groups: 1) OPEC (Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Iran, Algeria, and Nigeria; and 2) Non-OPEC allies (Russia, Kazakhstan, Mexico, and Oman).
FactSet is a US financial data and software company that provides integrated data and software solutions to investment professionals globally.
FRED stands for Federal Reserve Economic Data. It is an online database created and maintained by the Research Division of the Federal Reserve Bank of St. Louis.
S&P Global is an American publicly-traded corporation that serves as a leading provider of financial information, analytics and market intelligence to individuals, businesses and governments worldwide. The company is best known for its independent credit ratings and the management of major global stock market indices, most notably the S&P 500.
YCharts is an investment research and financial analytics platform used by financial professionals such as advisors, asset managers and analysts. The platform provides an extensive database of financial metrics, economic indicators, and visualization tools to help users make informed investment decisions, manage portfolios and communicate with clients.
Disclosures
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, an SEC Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
All information in this report is believed to be from reliable sources; however, WCG Wealth Advisors, LLC, makes no representation as to its completeness or accuracy.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the companies as well as broad market, economic and political conditions. Stock investing involves risks, including fluctuating prices and loss of principal. Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. (135-LPL) International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. (93-LPL)
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk. (116-LPL)
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. (122-LPL)
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. (28-LPL)
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)
Standard deviation is a historical measure of the variability of returns relative to the average annual return. If a portfolio has a high standard deviation, its returns have been volatile. A low standard deviation indicates returns have been less volatile. (131-LPL)
This is for educational / general purposes only, does not constitute investment, tax or legal advice and should not be relied on as such. This is not to be construed as an offer to buy or sell any financial instruments. Any strategies discussed are not intended to be relied upon as the sole factor in making an investment decision for any individual. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. These comments should not be construed as recommendations but as an illustration of broader themes.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. In addition, forward-looking statements, including index targets or market scenarios, are hypothetical in nature, reflect current views and assumptions and are subject to change based on market and economic conditions and are not guarantees of future performance. This is a hypothetical example and is not representative of any specific investment. Your results may vary. (88-LPL) Scenario outcomes are illustrative and not predictive. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Publication Date: May 8, 2026
For Public Use in the US
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