Last week, markets absorbed a failed ceasefire deal and U.S. naval blockade of Iranian ports to close at a new all-time high. The S&P 500 returned 4.5% for the week and rose to an all-time high amid optimism the Iran war is close to an end; oil prices and treasury yields fell. Mid cap (+3.5%) and small cap (+5.6%) stocks gained as well. Within the S&P 500, technology (+8.1%), consumer discretionary (+6.6%) and communication services (+6.3%) were the best performing sectors; energy (-3.1%) and utilities (-1.7%) were the laggards. EAFE markets returned +2.2% while EM markets returned +3.2% with gains across all major geographies.
Enthusiasm spread across risk assets including credit, gold and crypto currencies while oil and gas fell. Brent prices fell 5.1% to $90/bbl. U.S. natural gas prices rose 1.0% while European gas fell 10.6%; both remain volatile based on war-related headlines. Gold rose 1.7% to $4,830/oz, while silver rose 6.6% to $81/oz. Bitcoin rose 5.4% to $77,370.
Investment grade fixed income sectors had positive returns as rates fell across the curve and spreads compressed. Municipals returned +0.3% and US Investment Grade (IG) returned +0.7%. High Yield (HY) bonds returned +0.7% as spread compressed 12bps while bank loans returned +0.5%. Emerging Market Debt (EM) debt returned +1.3% even as the U.S. dollar fell 0.6% as spreads compressed 15bps.
Rates fell across the curve as the market eyed the end of the war and fall in oil prices; expectations increased that the Fed will cut rates before year-end. The 5-year breakeven inflation expectations fell 4bps to 2.62% (vs. low of 1.88% on Sept 2024); 10-year breakeven inflation expectations fell 3bps to 2.36% (vs. recent low of 2.03% on Sept 2024); the 10Y real yield fell 4bps to 1.89%. For 2026, the market expects between 0 and 1 cut vs. the Fed’s guidance of 1 cut. At year end 2026, the market expects the Fed Funds rate to be 3.50% vs. the Fed’s guidance of 3.25%-3.5%.
Key Takeaways
1. The S&P 500 set a new all-time high this week, trading above 7,000 for the first time since late January.
The S&P 500 has had three consecutive 3+% weekly gains, best since 2020 where it’s up 15% in three weeks appreciating from the late-March market bottom of nearly -10% drawdown. The Nasdaq generated a winning streak of 14 consecutive positive days which is the best performance since 1992. Last Monday was the week’s test: overnight crude surged above $100 after the U.S. Navy blockade of Iranian ports took effect, sending stock futures lower. However, markets rose after confirmation that non-Iranian shipping would be unaffected.
Why It Matters – The past 1.5 months offered a lesson in the cost of reactive positioning. Investors who held through the correction were rewarded as markets reclaimed their highs, a reminder that timing geopolitical events can be difficult and costly.
2. Beyond the new stock market high, the geopolitical risk premium has faded as tensions ease.
The VIX spiked above 30 at the height of the conflict in late March and has since fallen below 20, approaching pre-conflict levels. High-yield credit spreads tell a similar story, tightening steadily over recent weeks as geopolitical tensions eased. The improvement is broad-based across financial markets, with equity volatility, credit spreads, and rate volatility all moving in the same direction.
Why It Matters – Multiple weeks of fading geopolitical risk premiums reinforce the market’s risk-on sentiment shift. With the Strait still effectively closed, the market will be monitoring those risk metrics closely.
3. Growth and technology stocks have led the market’s recovery from its late-March low.
Their outperformance closes the gap from earlier this year when Value and non-tech sectors led. For most of Q1, the broadening trade was the dominant narrative, with small caps, value, and international stocks outperforming the mega-cap tech names that drove the market’s gains in recent years. That dynamic reversed sharply off the market bottom, with Growth outperforming Value by over +11% in recent weeks. The YTD performance gap looks almost nothing like it did a month ago: Growth and Value have essentially converged.
Why It Matters – This year has already cycled through two distinct factor environments: a broadening, Value-led regime to start the year, followed by a sharp Growth-led recovery off the market bottom. The back-and-forth underscores the value of maintaining diversified portfolio exposure across factors.
4. Industrial production contracted in March after expanding in recent months.
The decline coincided with oil price volatility and geopolitical uncertainty, a period when energy costs surged and supply chain disruptions impacted manufacturing. The data paints a cautious picture of the real economy beneath the equity market’s record highs, but more recent data tells a different story. The April Philly Fed Manufacturing Index came in above expectations, suggesting activity has improved as tensions eased and energy prices fell.
Why It Matters – The March weakness appears consistent with a war-driven disruption rather than a structural deterioration. The question is whether manufacturing will regain momentum in the coming months.
5. Major Wall Street banks reported strong Q1 earnings, driven by market volatility and record capital markets activity.
Consumer credit quality remained healthy, and M&A revenue increased as deal activity picked up.
Why It Matters – The group’s positive results were an encouraging start to earnings season, though several banks flagged the increasingly complex backdrop as a development to monitor.
Weekly Commentary
Stocks Hit A Growth Spurt
Stuart Katz
Executive Summary
Last week, markets absorbed a failed ceasefire deal and U.S. naval blockade of Iranian ports to close at a new all-time high. The S&P 500 returned 4.5% for the week and rose to an all-time high amid optimism the Iran war is close to an end; oil prices and treasury yields fell. Mid cap (+3.5%) and small cap (+5.6%) stocks gained as well. Within the S&P 500, technology (+8.1%), consumer discretionary (+6.6%) and communication services (+6.3%) were the best performing sectors; energy (-3.1%) and utilities (-1.7%) were the laggards. EAFE markets returned +2.2% while EM markets returned +3.2% with gains across all major geographies.
Enthusiasm spread across risk assets including credit, gold and crypto currencies while oil and gas fell. Brent prices fell 5.1% to $90/bbl. U.S. natural gas prices rose 1.0% while European gas fell 10.6%; both remain volatile based on war-related headlines. Gold rose 1.7% to $4,830/oz, while silver rose 6.6% to $81/oz. Bitcoin rose 5.4% to $77,370.
Investment grade fixed income sectors had positive returns as rates fell across the curve and spreads compressed. Municipals returned +0.3% and US Investment Grade (IG) returned +0.7%. High Yield (HY) bonds returned +0.7% as spread compressed 12bps while bank loans returned +0.5%. Emerging Market Debt (EM) debt returned +1.3% even as the U.S. dollar fell 0.6% as spreads compressed 15bps.
Rates fell across the curve as the market eyed the end of the war and fall in oil prices; expectations increased that the Fed will cut rates before year-end. The 5-year breakeven inflation expectations fell 4bps to 2.62% (vs. low of 1.88% on Sept 2024); 10-year breakeven inflation expectations fell 3bps to 2.36% (vs. recent low of 2.03% on Sept 2024); the 10Y real yield fell 4bps to 1.89%. For 2026, the market expects between 0 and 1 cut vs. the Fed’s guidance of 1 cut. At year end 2026, the market expects the Fed Funds rate to be 3.50% vs. the Fed’s guidance of 3.25%-3.5%.
Key Takeaways
1. The S&P 500 set a new all-time high this week, trading above 7,000 for the first time since late January.
The S&P 500 has had three consecutive 3+% weekly gains, best since 2020 where it’s up 15% in three weeks appreciating from the late-March market bottom of nearly -10% drawdown. The Nasdaq generated a winning streak of 14 consecutive positive days which is the best performance since 1992. Last Monday was the week’s test: overnight crude surged above $100 after the U.S. Navy blockade of Iranian ports took effect, sending stock futures lower. However, markets rose after confirmation that non-Iranian shipping would be unaffected.
Why It Matters – The past 1.5 months offered a lesson in the cost of reactive positioning. Investors who held through the correction were rewarded as markets reclaimed their highs, a reminder that timing geopolitical events can be difficult and costly.
2. Beyond the new stock market high, the geopolitical risk premium has faded as tensions ease.
The VIX spiked above 30 at the height of the conflict in late March and has since fallen below 20, approaching pre-conflict levels. High-yield credit spreads tell a similar story, tightening steadily over recent weeks as geopolitical tensions eased. The improvement is broad-based across financial markets, with equity volatility, credit spreads, and rate volatility all moving in the same direction.
Why It Matters – Multiple weeks of fading geopolitical risk premiums reinforce the market’s risk-on sentiment shift. With the Strait still effectively closed, the market will be monitoring those risk metrics closely.
3. Growth and technology stocks have led the market’s recovery from its late-March low.
Their outperformance closes the gap from earlier this year when Value and non-tech sectors led. For most of Q1, the broadening trade was the dominant narrative, with small caps, value, and international stocks outperforming the mega-cap tech names that drove the market’s gains in recent years. That dynamic reversed sharply off the market bottom, with Growth outperforming Value by over +11% in recent weeks. The YTD performance gap looks almost nothing like it did a month ago: Growth and Value have essentially converged.
Why It Matters – This year has already cycled through two distinct factor environments: a broadening, Value-led regime to start the year, followed by a sharp Growth-led recovery off the market bottom. The back-and-forth underscores the value of maintaining diversified portfolio exposure across factors.
4. Industrial production contracted in March after expanding in recent months.
The decline coincided with oil price volatility and geopolitical uncertainty, a period when energy costs surged and supply chain disruptions impacted manufacturing. The data paints a cautious picture of the real economy beneath the equity market’s record highs, but more recent data tells a different story. The April Philly Fed Manufacturing Index came in above expectations, suggesting activity has improved as tensions eased and energy prices fell.
Why It Matters – The March weakness appears consistent with a war-driven disruption rather than a structural deterioration. The question is whether manufacturing will regain momentum in the coming months.
5. Major Wall Street banks reported strong Q1 earnings, driven by market volatility and record capital markets activity.
Consumer credit quality remained healthy, and M&A revenue increased as deal activity picked up.
Why It Matters – The group’s positive results were an encouraging start to earnings season, though several banks flagged the increasingly complex backdrop as a development to monitor.
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