Remarkable recovery lifts major indexes
After March’s decline, equity markets posted their strongest monthly gains since 2020. The S&P 500 rose 12.6%, closing above 7,200 for the first time ever. The Nasdaq hit a record closing high, while the Dow Jones Industrial Average gained 7.1%, its best month since November 2024. The rally reflected two main tailwinds: a ceasefire between the U.S. and Iran in early April, and an unexpectedly strong Q1 earnings season.

The CBOE Volatility Index (VIX) fell to 17, down from a March peak of 31 at the height of the Iran conflict. While some volatility may return, market sentiment has shifted decidedly positive. All three major U.S. indexes — the S&P 500, Nasdaq, and Dow Jones Industrial
Average — are trading higher than they were at the start of the year. Fixed-income markets were mixed in April. The equity rally reduced the demand for safe-haven bonds, and elevated oil prices kept Treasury yields high. Despite this, the overall market backdrop has considerably improved.

Geopolitical and oil developments
The announcement of a ceasefire between Iran and the U.S. triggered a sharp market reaction: The Dow surged over 1,000 points, oil prices fell, and sentiment moved from fear to cautious optimism. Oil prices remained elevated despite the ceasefire, with WTI crude trading at $103–$105 per barrel and Brent near $110. Gasoline prices rose above $4 nationally, reaching $6 in California. The energy price shock has meaningfully affected inflation and consumer sentiment.

Economic data

• Inflation: Driven by surging energy prices, March CPI rose 3.3% year-over-year, the largest monthly increase since 2022. Core CPI remained moderate at 2.6%.
• Employment: March added 178,000 jobs, rebounding from February’s 133,000-job loss; unemployment fell to 4.3%. Weekly jobless claims ended April at the lowest level since 1969.
• Federal Reserve: The Fed kept interest rates at 3.5%–3.75% in a notable 8–4 split vote. Markets expect no rate changes for the remainder of 2026. According to J.P. Morgan Research, the next move could even be a hike if inflation persists.

First quarter earnings
Approximately 28% of S&P 500 companies have reported earnings. Blended growth stands at 15.1%, well ahead of the 13.2% consensus. Based on historical patterns of earnings surprises, the final Q1 growth rate could approach 19%, the strongest since Q4 2021.

Notable contributors:

• Alphabet: +10%
• Caterpillar: +10%
• Eli Lilly: +7%
• Qualcomm: +16%

On the other hand, Meta dropped 9% and Microsoft 3.9% after increased capital spending, raising investor concerns about near-term AI returns.

S&P 500 net profit margins are tracking 13.4%, the highest since 2009. Full-year 2026 earnings growth estimates are now 18.6%. The forward price-to-earnings (P/E) ratio is 20.9, meaning stocks are trading at about 21 times expected earnings, higher than the 5- and 10-year historical averages.

Improved 2026 Outlook
We expect growth in the 10%–14% range, supported by continued strong earnings and the potential for peace in the Middle East. Risks remain, however, such as elevated oil prices, geopolitical uncertainty, rising inflation, and a complex policy environment amid upcoming changes in Fed leadership.

Seeing investment opportunities across a broad spectrum, we are expanding into undervalued assets and private markets. Dividend stocks continue to stand out, and AI buildout remains a powerful long-term growth driver supported by major tech capital expenditures.

The market is valued at 20.9 times forward earnings, reflecting a strong rally. Despite low consumer sentiment, leading U.S. companies remain well-managed, profitable, and innovative. Sustained peace in the Middle East and falling oil prices will be near-term catalysts for further gains.