Stocks climbed to new records this week, shrugging off a failed ceasefire deal and a U.S. naval blockade of Iranian ports.
The S&P 500 gained nearly +3%, completing an 11-session V-shaped recovery from the late-March bottom, while the Nasdaq gained nearly +5% to set its own record. Smaller companies participated in the advance but lagged, and defensive sectors along with energy, industrials, and materials declined.
Bonds finished roughly flat, oil ended the week lower despite an early surge, and volatility measures continued to ease as geopolitical risk premiums faded.
Key Takeaways
The S&P 500 Set a New All-Time High
The index traded above 7,000 for the first time since late January, completing a full recovery from the nearly -10% late-March drawdown. Monday was the week’s test, with oil briefly surging above $100 on news of the U.S. Navy’s blockade of Iranian ports before markets recovered after confirmation that non-Iranian shipping would be unaffected.
The past six weeks were a reminder that trying to time geopolitical events carries a real cost for investors who moved to the sidelines.
Market Risk Premiums Continue to Fade
The VIX, which spiked above 30 at the height of the conflict in late March, has since fallen below 20 and is approaching pre-conflict levels. Credit spreads have tightened steadily, and equity volatility, credit conditions, and interest rate volatility are all improving in tandem.
With the Strait of Hormuz still effectively closed and no official ceasefire in place, these risk metrics will remain closely watched.
Growth and Technology Stocks Have Reasserted Their Leadership
After spending much of the first quarter lagging behind value, smaller companies, and international markets, growth and technology stocks have outperformed value by more than +11% since the late-March low. As a result, the year-to-date performance gap between growth and value has nearly closed.
This year has already cycled through two distinct market environments, underscoring the value of maintaining diversified exposure.
Manufacturing Contracted in March, But April Data Signals Recovery
Industrial production pulled back in March as energy costs surged and supply chain disruptions weighed on activity. More recent data offers a more encouraging picture, with the April Philadelphia Fed Manufacturing Index coming in above expectations as tensions eased and energy prices fell.
The March weakness appears tied to conflict-related disruption rather than a broader deterioration in economic conditions.
Bank Earnings Provided an Encouraging Start to Earnings Season
Major Wall Street banks reported strong first-quarter results, driven by elevated market volatility and increased capital markets activity, while consumer credit quality remained healthy.
Several banks did flag the increasingly complex backdrop as a development worth monitoring going forward.
As always, feel free to reach out with any questions or concerns as they come up.