Weekly Market Update: Relief Rally Lifts Markets to New Highs as Ceasefires Hold
Markets surged in April as a series of diplomatic breakthroughs lowered the risk of further military escalation, with the S&P 500, Nasdaq, and Russell 2000 all closing at fresh all-time highs and erasing the first quarter’s losses.
Leadership was narrow, however, and the gains were uneven beneath the surface. Growth stocks outpaced value by +8%, reversing the first quarter’s rotation, and semiconductors rallied +40% on a 17-day winning streak. The average stock across the S&P 500 underperformed the index by nearly -4.5%, and all ten remaining sectors trailed technology.
Bonds were mixed. Treasury bonds produced modest losses as yields drifted higher, while corporate bonds traded higher as credit spreads tightened. Oil whipsawed on geopolitical headlines, with WTI crude rising +7% but trading in a wide $80 to $115 range, and a measure of market volatility fell sharply as investors unwound the geopolitical risk premium.
Ceasefires Drove the Rally, Oil Supply Disruption Remains
Stocks surged as the U.S.-Iran ceasefire was extended, the Israel-Lebanon ceasefire held, and de-escalation rhetoric reduced the risk of a wider ground war. Markets responded by unwinding the geopolitical risk premium that had weighed on equities throughout the first quarter.
The U.S. naval blockade of Iranian ports remains in effect, however, and the Strait of Hormuz remains functionally closed.
Why it matters: The diplomatic track and the physical supply situation are moving in opposite directions. Whether April’s rally holds may depend on whether the Strait reopens.
Fed Outlook Shifts from Possible Hikes to Possible Cuts
Markets repriced Fed expectations at each remaining 2026 meeting, shifting from pricing in possible hikes to pricing in possible cuts. The most likely outcome is still no change, with cut probabilities below 15%, but the move reflects a meaningful change in tone driven by oil’s pullback easing near-term inflation fears.
The Fed is also preparing for a leadership transition, with Kevin Warsh set to succeed Jerome Powell when his term expires in May.
Why it matters: The Fed’s policy path has become harder to read at the same moment its leadership is changing hands, leaving markets to navigate both inflation risk and institutional uncertainty.
Q1 Earnings Off to a Strong Start, Margins Hit Record
First-quarter earnings season started strong, with the quarter on pace for a sixth consecutive quarter of double-digit growth and profit margins reaching a record 13.4%. Analysts now forecast +18% earnings growth over the next 12 months.
Forward valuations rose to 21x from 19.7x at quarter-end, with a meaningful portion of the move tied to rising earnings estimates rather than pure multiple expansion.
Why it matters: With valuations elevated and the geopolitical backdrop still volatile, earnings growth has become the primary path to further upside, and the rising bar means continued delivery will be needed to sustain current levels.
Rally Breadth Narrow Despite New Highs
The S&P 500 reclaimed key trend levels and closed near an all-time high, fully erasing March’s -9% drawdown. Risk appetite surged as credit spreads tightened, volatility fell, and institutional equity futures positioning moved to its highest level since late 2024.
Beneath the surface, the rally was concentrated in semiconductors and mega-cap stocks rather than broad-based participation, and some measures of investor sentiment remained subdued.
Why it matters: Sustained rallies historically require broadening participation, and the current concentration leaves the index vulnerable if sentiment around the AI and growth trade shifts.
Economy Rebounds, Inflation Picture Worsens
The U.S. economy grew +2% in the first quarter, rebounding from +0.5% in the fourth quarter as the government shutdown effect reversed. Manufacturing held above the expansion threshold for a third consecutive month, and unemployment edged lower to 4.3%.
The inflation picture is less encouraging. Headline consumer prices surged +0.9% in March, the highest since June 2022, and the Fed’s preferred core inflation measure remains elevated at +3.2% year-over-year and trending higher.
Why it matters: The growth picture is firming up at the same time the inflation picture is deteriorating, and the longer oil remains elevated, the harder it becomes for the Fed to ease policy later this year.
May Calendar Brings Fed Transition and Continued Earnings
The month ahead is one of the more consequential on the calendar this quarter. The Fed meets in May for what will be Chair Powell’s final meetings before Kevin Warsh takes over, and the second half of Q1 earnings season continues with results from a broad range of companies.
Oil and the status of the Strait of Hormuz remain the key variables outside of corporate fundamentals.
Why it matters: How Powell frames the inflation and growth outlook on his way out, the tone Warsh signals on his way in, and any movement on the physical oil supply situation could each set the tone for markets heading into the summer.