Market Trends | May edition

If it feels like the market is moving faster than ever, it’s not your imagination. The market’s recovery from the 10% sell-off in March after the outbreak of conflict with Iran was the fastest this century¹ (see Figure 1).

Even just since we published our Spring Investment Directions, a lot has happened but the stock market has largely looked beyond geopolitical headlines and rising oil prices. The S&P 500 rose 10.5% in April, hitting record highs and notching its best month since November 2020.²

The Nasdaq 100 posted its best month in nearly a quarter century, rising 15% in April, while the NYSE Semiconductor Index surged 40%, its biggest monthly gain since February 2000, featuring only two days of negative performance in the entire month.³

Following the flow of our Spring Investment Directions, we seek to answer a question on a lot of investors’ minds:

How is the stock market holding up so well during a major energy shock?

We believe U.S. equity markets have been able to largely look through the geopolitical volatility stemming from the Middle East conflict because of both macro and micro fundamentals.

On the macro side, the U.S. entered the conflict from a position of relative strength — with solid growth, expected fiscal stimulus via tax rebates, and an accommodative Fed posture. Unlike other major central banks, the Fed has a dual mandate enabling it to remain patient in the near term and able to cut rates if the U.S. labor market dramatically softens.

As an energy exporter with a higher-income consumer base less sensitive to energy price spikes, the U.S. economy has been uniquely resilient to the energy shock to date.

On the micro side, S&P 500 earnings were revised up over the course of March, creating attractive valuations that drew investor demand even amid global uncertainty.⁴

The recent market selloff reset valuations. Prices came down at the same time earnings estimates continued to move higher, a rare occurrence — from the start of the conflict through late April, 2026 EPS forecasts for the S&P 500 increased by 8.1%.⁵

While oil’s surge dominated sentiment in March, equities have been much more sensitive to earnings since the start of Q1 reporting season.

The overarching theme among companies reporting to date is one of heightened vigilance, but limited near-term impact observed so far, with the notable exception of sectors like Airlines and Energy.⁶ Most companies have acknowledged the conflict as a significant source of macro uncertainty, yet the majority report they have not seen material negative effects flow through to demand, credit quality, or consumer behavior.⁷ (Back on the macro front, the Conference Board’s April consumer sentiment indicator unexpectedly rose in April vs. the prior month.⁸)

To put corporate earnings in perspective: The S&P 500 is now tracking for 27% Q1 YoY earnings growth, a big step-up vs consensus expectations of 15% in the last week of April; if sustained, it would be the strongest quarterly earnings growth since late 2021.⁹ While part of the rise is being amplified by non-recurring items at a few very large companies, the index is still on track for 21% adjusted earnings growth in Q1, meaning those one-time items are removed, the sixth-straight quarter of double-digit earnings growth for corporate America.¹⁰

Moreover, the blended net profit margin for the S&P 500 in Q1 is 13.4% to date, on track to surpass the record set in the fourth quarter of 2025.¹¹

AI remains the dominant earnings engine. The upside is being led by the mega-cap AI infrastructure suppliers, where cloud usage, backlog growth, and elevated capex plans are converting the AI buildout into accelerating revenue streams.

As expected, the Fed held rates steady at its April 29 meeting.

But for a day when the Fed took no policy action, April 29 was still one of the most eventful days in the central bank’s recent history:

• The Senate Banking Committee voted to advance Kevin Warsh’s nomination to be the next Fed Chair. A full Senate vote is expected to occur before the next scheduled FOMC meeting in June.
• Four Fed officials dissented on the April decision, the highest level of dissent at an FOMC meeting since October 1992.¹² Three dissenters “did not support inclusion of an easing bias in the statement at this time.”¹³
• Fed chair Jay Powell said he will stay on the Board of Governors for an indefinite period until a probe into the renovation of the central bank’s headquarters “is well and truly over with transparency and finality.”¹⁴ Historically, most outgoing chairs have left the board.

We believe the Fed is likely to stay on hold for the foreseeable future: It may cut if the labor market does slow dramatically, but the broader implication from the April meeting and press conference was of a committee that is more divided and moving away from its dovish stance. Any future changes to policy will require consensus building rather than unilateral policy action from (presumptive) new Chair Warsh.