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Signals Are Flashing but the Market’s Still Moving

Author

Noah Zelvis
July 23, 2025

On the surface, the U.S. economy looks strong. Stock indices are hitting record highs. Jobless claims remain low. Retail earnings are solid.

However, a different story is emerging underneath, one told by the data that tends to lead, rather than follow.

The Leading Economic Index (LEI), a composite of 10 forward-looking indicators, fell again in June. The Conference Board reported a 0.3 percent decline, marking the 26th drop in the last 29 months. That index has now dropped 2.8 percent year-to-date, a faster pace than its decline in late 2024.

Stock prices were the biggest source of strength in the LEI. But that gain was not enough to outweigh persistent weakness in consumer expectations, new manufacturing orders, and rising unemployment claims.

This divergence between markets and macroeconomic signals is becoming increasingly difficult to ignore. While no one is forecasting a recession just yet, growth is clearly slowing. If trends in leading data continue, investors may need to reconsider the “soft landing” consensus that has supported risk assets for much of 2023.

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Economic Impacts

The LEI is built to anticipate turning points in the business cycle. Currently, it’s indicating a broad cooling across the U.S. economy.

Key contributors to the decline include:

  • Weak new orders in manufacturing, signaling demand softness across industrial supply chains

  • Low consumer expectations, which often precede pullbacks in discretionary spending

  • Rising jobless claims, now increasing for the third straight month

  • Muted building permits, reflecting drag in residential construction

These pockets of weakness contrast with strong equity markets, leaving many economists to warn that the "last leg" of strength, consumer spending and corporate confidence, may be more fragile than it appears.

The Conference Board expects economic growth to slow meaningfully in the second half of 2025.

Higher prices, elevated interest rates, and tighter labor market conditions are starting to weigh on real activity, even if it hasn't yet been reflected in earnings.

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Investor Takeaways

This is the type of environment where good data and bad data can coexist.

The risk is assuming that market momentum will override deeper, more fundamental structural signals.

Investors should:

  • Stay selective: Not all companies are positioned equally for a slowdown. Look for strong balance sheets, demand visibility, and flexible cost structures.

  • Watch labor trends: The job market has held up well, but the uptick in claims suggests softness is spreading. Any sustained rise in unemployment could alter spending behavior and market sentiment quickly.

  • Use LEI trends as context: While the stock market serves as a real-time gauge of sentiment, the LEI provides a forward-looking signal. When they diverge this sharply, it’s worth preparing for adjustments.

  • Avoid chasing overheated sectors: If growth slows as expected, recent leaders may face mean reversion. This is a good time to review position sizes and stress-test your thesis.

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Top Takeaways

The LEI is flashing warning signs, even as market confidence remains high.

✅ Leading indicators suggest growth is slowing, which may favor quality names with predictable cash flow
✅ Rising jobless claims and weak consumer sentiment require closer watch as Q3 unfolds
❌ Don’t mistake market highs for economic strength, as momentum can mask fragility
❌ A slowdown doesn’t mean panic, but it does mean adjusting expectations and positioning ahead of time

Top Picks

Intuit Inc. (NASDAQ: INTU)

$766.78 Last Close (+23.12% YTD)
Intuit provides core financial tools, such as TurboTax and QuickBooks, with recurring revenue and high retention.

In a slower economy, its mission-critical software and cloud-based business model give it resilience and pricing power.

With a 0.54% dividend yield and a strong balance sheet, it remains a high-quality tech name for uncertain times..

The Hershey Company (NYSE: HSY)

$181.69 Last Close (+7.64% YTD)
Hershey continues to demonstrate strong demand, brand loyalty, and pricing strength.

With a 3.02% dividend yield and consistent performance across cycles, it's a proven performer when consumers become more cost-conscious.

Its focus on U.S.-based production also limits exposure to global shocks.

American Water Works (NYSE: AWK)

$144.91 Last Close (+1.39% YTD)
As one of the largest water utilities in the U.S., American Water offers steady cash flow and a 2.28% dividend yield.

It’s a classic defensive name that benefits from infrastructure investment and regulatory rate hikes. It’s well-positioned for a low-volatility environment..

W.W. Grainger Inc. (NYSE: GWW)

$1,035.12 Last Close (+10.83% YTD)
Grainger’s focus on industrial and maintenance products makes it essential to businesses in any economic climate.

With strong digital distribution, robust margins, and a growing dividend (yielding 0.87%), it’s a rare industrial name that performs well in both up and down cycles.

Stock to Buy

Johnson & Johnson (NYSE: JNJ)

$167.93 Last Close (+16.60% YTD)
Johnson & Johnson is the kind of stock that tends to shine when the economy begins to slow beneath the surface, but investors aren’t ready to panic.

It combines three key strengths that make it especially relevant right now: consistency, visibility, and value.

The company’s earnings are growing steadily, and it has topped both revenue and profit expectations in recent quarters.

Its healthcare and pharmaceutical products are essential, giving it strong demand regardless of economic sentiment.

JNJ also offers balance sheet strength and a wide moat across multiple business lines, including medical devices and consumer health.

Its 3.10% dividend yield adds another layer of investor appeal in a market that may become more risk-averse as leading indicators weaken.

At a forward price-to-earnings ratio under 18, JNJ trades below its long-term average and offers upside without requiring a perfect macro environment.

In short, it’s a name built to hold up well when growth slows, sentiment shifts, and quality starts to matter again..

Why it works now:

  • Strong earnings momentum with rising estimates

  • Defensive sector exposure with global scale

  • Dividend income plus valuation support

  • Less sensitive to economic surprises or supply chain volatility

This is a solid core holding that fits perfectly in a portfolio that wants to stay bullish but not blind.

That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.

Best Regards,
—Noah Zelvis
Macro Notes