Weekly Market Update: Rally Slows as Geopolitics Take Center Stage
Markets moved higher for a fourth consecutive week, with the S&P 500 and Nasdaq both closing at fresh all-time highs for the second week in a row.
The pace of the rally slowed, however, and the gains were uneven beneath the surface. Small cap stocks outperformed both major indexes, while international stocks traded lower as oil prices rebounded and the U.S. dollar strengthened.
Value stocks modestly outperformed growth stocks, and despite the S&P 500’s new high, 5 of 11 sectors traded lower, with defensive sectors lagging the rally.
Bonds ended the week with modest gains despite yields drifting higher, with Treasury and corporate bonds producing similar returns. Oil prices rose after two consecutive weeks of declines, and a measure of market volatility ticked up as investors responded to geopolitical developments during the week.
Key Takeaways
Week Defined by Geopolitical Whipsaw in Middle East
The week was defined by geopolitical whipsaw as U.S.-Iran tensions swung between diplomatic progress and physical deterioration. The headline was constructive: Trump extended the ceasefire indefinitely.
However, the U.S. naval blockade of Iranian ports remained in place, scheduled peace talks were canceled, and questions emerged about a potential Iranian leadership change.
Why it matters: The diplomatic path forward remains open, but the physical confrontation has not been resolved, and the disruption to oil supply has not been removed. Both factors could continue to impact financial markets.
Oil Prices Rise as Naval Blockade Remains in Place
Crude oil surged more than +5% on the week, erasing a portion of the prior two weeks’ decline, and Brent crude, the international benchmark, rose back above $100. The move was driven entirely by geopolitical developments, and the ceasefire extension did little to lower oil prices.
On the economic side, March retail sales showed consumer spending held up despite rising energy costs, a sign of resilient demand.
Why it matters: The two-week decline in oil prices had offered an encouraging signal that energy-driven inflation pressures might ease. That picture changed this week. The longer oil remains elevated, the greater the risk that energy costs begin to weigh on consumer spending, corporate profit margins, and broader economic activity. Oil prices are one of the most important variables to monitor in the coming months.
S&P 500 Continues to Set New All-Time Highs
Stocks reached new highs, but the pace of the rally slowed. The S&P 500 and Nasdaq both closed at fresh all-time highs mid-week, supported by the ceasefire extension and a solid start to first-quarter earnings season. Nearly 25% of S&P 500 companies have reported Q1 2026 results, with roughly 80% beating estimates.
Even so, the market’s appetite for additional risk appeared to pause. Volatility edged higher, and high-yield credit spreads were flat after three consecutive weeks of tightening, a sign that markets are digesting recent gains rather than pressing further.
Why it matters: The rally remains intact, and the early earnings results are encouraging. However, the pause suggests the market may need a clearer geopolitical signal, such as a geopolitical resolution or positive diplomatic development, before moving higher.
Treasury Yields Reverse Higher as Oil Prices Rise
The 2-year Treasury yield gave back nearly half of a three-week decline that had built on ceasefire optimism and falling oil prices.
Two factors drove the reversal: the collapse of Iran peace talks and the Senate confirmation hearing for Fed Chair nominee Kevin Warsh, which added uncertainty around the future direction of Federal Reserve leadership.
Why it matters: Last week’s Fed policy forecast suggested the Fed could have room to cut rates later this year if oil prices continued to fall. This week, that conviction softened. With oil reversing higher and Fed leadership in transition, markets are weighing both inflation risk and institutional uncertainty heading into next week’s Fed meeting.
Next Week’s Calendar is Busy
The main event is the Federal Reserve meeting, which will include Chair Powell’s second-to-last press conference. The policy decision is widely expected to be a hold, but Powell’s characterization of the inflation and growth outlook will be closely watched.
The week also brings a cluster of earnings reports from major technology companies, including Microsoft, Alphabet, Meta, and Amazon, which will offer a window into the state of AI capital spending.
Why it matters: The Fed meeting and tech earnings together make next week one of the more consequential on the calendar this quarter. How Powell frames the inflation picture, and whether leading technology companies confirm or temper expectations around AI investment, could set the tone for markets heading into May.