Financial markets have encountered a lot of turbulence this year. From mixed and confusing economic data to energy spikes to geopolitical military conflict, the world seemingly has thrown everything but the kitchen sink at markets over the last several months. Yet despite a 10% peak-to-trough S&P500 drawdown and oil prices eclipsing triple digits, equities find themselves calm and collected within a stone’s throw of all-time high values. Entering the month, the broad indices were heavily oversold and as conditions abroad began to stabilize, and investors shifted their focus away from the Middle East and towards Q1 earnings, equities snapped back in a furious rally to reverse all losses suffered in February and March. This reversal, which very few pundits were anticipating – let alone calling for – represented a classic example of markets “looking ahead” and pricing in what is expected to happen, rather than what is happening at any particular moment. Clearly, the market expects a resolution of some kind to the Iran conflict, as well as sustained strength in corporate earnings and a resurgence of the AI trade. It is often said that markets tend to reflect reality, and as we stand now in early May, reality looks encouraging.
The major indices all delivered impressive gains during April, with the tech-heavy NASDAQ strongest (+15.7%) and the Dow Jones least strong (+7.2%). The rally was not confined to just large- and mega-cap domestic names; we saw similar strength in small / mid-cap and overseas indices as well. Record highs were reached across the board. In addition to cooling tensions on the geopolitical front, the April rally was an expression of the market’s satisfaction with corporate earnings, which have come in consistently and significantly higher than even the loftiest beginning-of-year expectations. With roughly 60% of S&P500 companies having reported as of this writing, earnings growth for the market is averaging a stunning 25%, nearly double the 13.2% consensus expectations. This marks the sixth consecutive quarter of double-digit earnings expansion. Encouragingly, growth has been widespread as nine of the eleven S&P500 sectors are reporting positive growth this year, representing a shift from the AI and technology-driven growth story of recent years to a more broad-based, participatory environment. Bullish stuff indeed.
While stocks spent the month racing faster than a Kentucky Derby thoroughbred, bonds signaled a slightly more mixed outlook. Certain segments of the fixed income markets, such as investment grade and high yield corporates, enjoyed modestly positive returns during the month. A retracement in crude oil prices and associated easing of inflation pressures helped to lift the values of these credits. But government issues, namely US treasuries, were slightly lower as interest rates increased across the curve and government bond prices were pressured lower. Strong quarterly earnings, as described above, also weakened the odds of recession and all but eliminated the possibility of an interest rate cut. In keeping, the Federal Reserve did hold interest rates steady during its April meeting, amid considerable dissent. Four of the seven governors of the board chose not to vote with the majority. Such disagreement among voting members has not been seen since 1992. Dissenting voters made reference to a potentially increasing inflationary environment, spurred on by higher oil and energy prices, and hoped that the wording of the regularly published Fed statement would contain more hawkish language. So, despite something of a stalemate, the central bank appears to be on hold for the time being, with June rate cut odds clocking in at a lowly 3%. Clearly, market expectations have shifted meaningfully from one-to-two cuts in 2026 earlier in the year to essentially zero in the next few months.
As we move forward into May and beyond, the markets are continuing to fight a tug of war between robust corporate profitability and the conflict in the Middle East, with its associated surge in oil prices and closure of the pivotally important Strait of Hormuz. As of this writing, the fight is now in its 10th week and the ceasefire currently under observation is tenuous at best. Happily, the markets thus far have been able to shrug it all off, preferring to focus on the best earnings season in years and renewed momentum in the AI investment thesis. This is evidenced by the V-shaped rebound in equities last month and year-to-date performance hovering around “normal” levels for the first four months of the year. Against this backdrop, things look much more stable now than they did a few short months ago. Still, uncertainty and unpredictability are always lurking around the corner. There remain legitimate risks to the larger bullish thesis, from a re-escalation in Middle East tensions to a sustained energy disruption to under-the-radar stress in private credit. Luckily, we believe Altara portfolios remain fully diversified and positioned in a way to take whatever the market may throw at us, kitchen sink or not.
We thank you for your interest and steadfast support. Please reach out with any questions or concerns.
Sincerely,
Jason D. Edinger, CFA
Chief Investment Officer
Altara Wealth
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.