A Resilient Market Roars Back With
New All-Time Highs to Close Out April
HIGHLIGHTS:
- Stocks: After posting its worst month in four years in March, the S&P 500 Index rebounded strongly to end April at a new all-time high.
- Bonds: Rates were volatile but trended higher in April. Bond results were mixed for the month.
- U.S. Economy: Data released in April largely leaned positive for March. We will monitor if the Iran conflict becomes a headwind to the economy.
- Federal Reserve: The FOMC did not make any changes at its April meeting, the last with Powell as chair. However, there were four dissenting votes, the most since 1992, as Warsh looks likely to assume the chair role.
Equity Markets
Saying equity markets recovered in April would be an understatement. After selling off sharply in March as the Iran conflict escalated, equities rallied in April as cease-fire talks progressed. While the conflict is clearly not over, the market reacted positively to steps in that direction and robust earnings with a strong rally in April. See Table 1 for April, Q1, and YTD returns.
Table 1 | Equity Markets
| Index | April 2026 | Q1 | YTD |
|---|---|---|---|
| S&P 500 | 10.49% | -4.33% | 5.70% |
| S&P 500 Equal Weight | 5.97% | 0.67% | 6.68% |
| DJIA | 7.24% | -3.19% | 3.81% |
| Russell 3000 | 10.20% | -3.96% | 5.84% |
| NASDAQ Comp. | 15.31% | -6.96% | 7.29% |
| Russell 2000 | 12.21% | 0.89% | 13.21% |
| MSCI ACWI ex U.S. | 9.65% | -0.71% | 8.88% |
| MSCI Emerging Mkts Net | 14.71% | -0.17% | 14.52% |
Recent laggards became leaders in April. Large-cap growth stocks stumbled out of the gate to start 2026, and their prices, in general, continued to trend lower in March as the conflict with Iran started. Importantly, as stock prices struggled in March, earnings expectations increased. The math became simple. With stock prices falling (P), and earnings expectations rising (E), valuations (as measured by the P/E ratio) began to improve rapidly. At times in March, we saw valuations on several large-cap growth companies decline to levels that we had not seen in some time. In April, those large-cap growth companies led the rally with the Nasdaq up over 15% for the month. Small caps and emerging markets were the leaders year to date, but equities broadly showed solid results four months into 2026. Shorter-term volatility could mount as the Iran conflict drags on, a new Fed chair looks poised to be confirmed, and midterm elections loom later this fall. However, when the focus has been on market fundamentals, like strong expected earnings growth and continued economic progress, equities have been able to advance.
The U.S. economy and capital markets have been incredibly resilient in recent years. The beginning of 2026 has been no exception. With fundamentals still intact, driven largely by strong expected earnings growth, we still believe opportunities exist in stocks. At the same time, we recognize the rally from April 2025 lows has been strong, and some volatility could develop in the months ahead with a new Fed chair and midterm elections coming.
Fixed Income
After credit spreads widened in March, they narrowed in April. However, rates continued their overall move higher last month, but not to the degree seen in March. The 10-year U.S. Treasury, which closed March at 4.30%, rose to 4.40% to end April. We saw mixed results in the bond market with more credit-focused areas doing better, and the most interest-rate sensitive pockets, like U.S. Treasuries, having the weakest results. See Table 2 for bond index returns for April, Q1, and YTD.
Table 2 | Fixed Income Markets
| Index | April 2026 | Q1 | YTD |
|---|---|---|---|
| Bloomberg U.S. Agg | 0.11% | -0.05% | 0.07% |
| Bloomberg U.S. Credit | 0.45% | -0.48% | -0.03% |
| Bloomberg U.S. High Yld | 1.69% | -0.50% | 1.19% |
| Bloomberg Muni | 1.15% | -0.18% | 0.97% |
| Bloomberg 30-year U.S. TSY | -0.84% | -0.14% | -0.98% |
| Bloomberg U.S. TSY | -0.07% | -0.04% | -0.12% |
During a month when equities rallied strongly, it was not a surprise to see high-yield bonds act in concert with the best results in fixed income. Munis showed solid gains as well. Gains made in the Bloomberg U.S. Aggregate Bond Index (the Agg), high yield, and muni indices for the month were enough to push year-to-date results back into the black. U.S. Treasuries have been the most sensitive to higher rates and added to modestly negative Q1 results with additional declines in April. Overall, we believe the 10-year U.S. Treasury will be range bound this year between 3.5% and 4.5%, and we have been in the upper end of that range in recent weeks.
We maintain our longstanding position favoring credit versus pure rate exposure in this interest rate environment. The story has been much more about the general move higher in interest rates so far this year (not changes in credit spreads), particularly after the conflict with Iran began. We believe the role bonds play in a portfolio, to provide stable cash flow and to help offset the volatility of stocks in the long run, has not changed. With uncertainty ahead, we believe having an active bond management approach makes sense. Furthermore, rates remain elevated and provide attractive opportunities for bond investors.
Economic Data Highlights and Outlook
Although March might be a bit early to fully capture the impact of the conflict with Iran, most economic data was positive for the month. Headline inflation data moved higher, but core readings remained in check. The Producer Price Index (PPI) for March rose 0.5%, but that was lower than expectations of 1.1%. The annual reading rose to 4.0%, also well below expectations of 4.6%. The core PPI was expected to rise 0.4%, but the increase was a more modest 0.1%. The annual increase of core PPI was 3.8% through March, matching a revised February number and notably better (lower) than expectations of 4.1%.
The headline Consumer Price Index (CPI) jumped in March as energy prices, particularly gasoline, rose. The headline CPI rose as expected by 0.9% pushing the annual increase to 3.3%, modestly better than expectations of 3.4%. Core CPI increased only 0.2% for the month and 2.6% for the year with both readings, 0.1% below their respective expectations.
The headline Personal Consumption Expenditures (PCE) price index rose 0.7% in March as expected. The annual increase was 3.5%, as expected, but much higher than the 2.8% reading last month. The core PCE price index (the preferred measure of the Fed) matched expectations by increasing 0.3% for the month and 3.2% for the year. There are worries that sustained higher oil prices could be problematic for inflation, and we will monitor inflation closely moving forward. We acknowledge that higher energy prices might stall progress made on inflation and likely leaves the Fed on hold longer than anticipated.
Chart 1
Payroll data was a source of strong economic news for March. Payrolls increased by 178,000, much stronger than the 65,000 estimate, but February job losses were greater than first reported. The unemployment rate improved to 4.3% when it was supposed to remain steady at 4.4%. As the employment rate has ticked higher in recent years, job openings and the hiring rate have been trending lower. The “no hire/no fire” labor market is an apt description of the current job market.
Chart 2
The Institute for Supply Management (ISM) Manufacturing Index provided more positive economic news to begin the new year. For the first time since February 2025, this ISM reading reflected expansion at 52.6 in January 2026. Backing up that reading, the ISM Manufacturing Index came in at 52.4 in February, exceeding expectations of 51.5. As we often say, one month is not a trend, but back-to-back months have reflected expansion in manufacturing to begin the year. More good news – this reading came in at 52.7 for March, ahead of expectations of 52.3, but prices paid moved higher and could be pointing to increasing inflation pressures. The ISM Non-Manufacturing Index, which covers the much larger service industries in the U.S. economy, continued to reflect expansion. This reading came in at 56.1 for February, showing solid growth, compared to expectations of 53.5. Recall for the ISM indices, readings above 50 represent expansion and below 50 reflect contraction. Both manufacturing and service industries have shown growth to begin 2026.
Consumer spending was solid in February with retail sales (ex-autos and gas) increasing 0.4% for the month, better than the 0.3% expectation. While rearview looking, the personal consumption portion of the second reading of Q4 GDP came in at a 2.0% annualized rate, less than the initial estimate of 2.4%. Consumer sentiment readings have been rather weak for some time, but we have not seen that translate into a meaningful drop in consumer spending. The preliminary University of Michigan Consumer Sentiment reading for March was better than expected at 55.5, but that was lower than the prior month. However, this reading declined in its final release for March, which occurred after the Iran conflict, to 53.3. Consumer spending will be important to monitor due to the central role that household consumption plays in the U.S. economy. U.S. consumers are resilient, but we will need to monitor if higher gas prices lead to less spending in other areas.
The second reading of Q4 GDP was revised sharply lower when released in March. Economic growth slowed to a 0.7% annualized pace, half of the preliminary GDP reading and expectations of 1.4%. Recall that part of this weakness was caused by the longest government shutdown in U.S. history (which the partial DHS shutdown has just surpassed). Personal spending also declined from the preliminary reading. It appears this could be a rather “noisy” GDP report due to the impact of the government shutdown and harsh weather across much of the country, but the second revision to the reading reflected a rather weak end to the year for the U.S. economy. The GDPNow forecast from the Atlanta Fed for Q1 2026 GDP shows the economy starting out 2026 on solid footing with a current estimate of 2.0% annualized growth (as of March 31, 2026). Chart 3 below shows GDP in recent years and the two strong quarters in the middle of 2025 bookended by weaker quarters.
Chart 3
The third reading of Q4 GDP was revised lower again to a mere 0.5% annualized growth rate to close out 2025. However, the advanced reading of Q1 2026 GDP was also released in April and that improved to a 2.0% annualized growth rate, but that was still below expectations of 2.3%. The personal consumption component of this advanced reading was at a 1.6% annualized pace – better than expectations of 1.4%, but below the 1.9% from the fourth quarter. The GDPNow forecast from the Atlanta Fed for estimated Q2 2026 GDP growth shows an expected pick up to a 3.5% annualized growth rate (as of May 1, 2026).
The FOMC meeting in April, the last with Jerome Powell as chair, had a few fireworks. Although no action was taken on rates as expected, there were four dissenting votes, the most dissenters since 1992. One vote was in favor of a 25-basis point cut, but the other three dissenters voted that they did not want to keep the easing bias language in the FOMC statement. This might be interpreted as a warning to the incoming chairman, Kevin Warsh, that members might have a differing opinion to what is assumed as a more easing bias by him. Jerome Powell also indicated that he would remain on the Fed board for the time being, when usually the chair resigns once his or her term as chair is completed. His term as Fed chair ends in mid-May, but his term as a Fed governor runs until January 2028. This could create some interesting meetings at the Fed!
Clearly, significant uncertainty still exists with the Iran conflict and the impact it will have on the broader global economy and capital markets. After struggling early in the conflict, stocks have made a remarkable recovery to achieve new all-time highs. Large-cap growth companies, which became meaningfully cheaper as stock prices came down, but earnings expectations improved, led the rally. Manufacturing has shown recent expansion, and the service industries have shown ongoing growth. The Fed is more in a wait-and-see mode, even with Warsh taking over as chair, and the market is not expecting any moves by the Fed until late in 2027.
Inflation might move higher with oil price increases. We believe this will be more of a shorter-term event, but it is yet to be seen. Undoubtedly, rising gas prices hurt many Americans, and we will monitor the impact this has on spending. The job market continues to be rather weak, but this has been an ongoing theme in this no hire/no fire job market. As always, we believe it is imperative for investors to stay focused on their long-term goals and not let short-term swings in the market, which could materialize at any time, derail them from their longer-term objectives.
Please Note: Most economic data has caught up from the government shutdown, however a few readings are still delayed and behind their typical schedule.
Economic Data
| Event | Period | Estimate | Actual | Prior | Revised |
|---|---|---|---|---|---|
| ISM Manufacturing | Mar | 52.3 | 52.7 | 52.4 | — |
| ISM Services Index | Mar | 54.9 | 54 | 56.1 | — |
| Change in Nonfarm Payrolls | Mar | 65k | 178k | -92k | -133k |
| Unemployment Rate | Mar | 4.40% | 4.30% | 4.40% | — |
| Average Hourly Earnings YoY | Mar | 3.70% | 3.50% | 3.80% | — |
| JOLTS Job Openings | Feb | 6890k | 6882k | 6946k | — |
| PPI Final Demand MoM | Mar | 1.10% | 0.50% | 0.70% | 0.50% |
| PPI Final Demand YoY | Mar | 4.60% | 4.00% | 3.40% | — |
| PPI Ex Food and Energy MoM | Mar | 0.40% | 0.10% | 0.50% | 0.30% |
| PPI Ex Food and Energy YoY | Mar | 4.10% | 3.80% | 3.90% | 3.80% |
| CPI MoM | Mar | 0.90% | 0.90% | 0.30% | — |
| CPI YoY | Mar | 3.40% | 3.30% | 2.40% | — |
| CPI Ex Food and Energy MoM | Mar | 0.30% | 0.20% | 0.20% | — |
| CPI Ex Food and Energy YoY | Mar | 2.70% | 2.60% | 2.50% | — |
| Retail Sales Ex Auto and Gas | Mar | 0.30% | 0.60% | 0.40% | 0.60% |
| Industrial Production MoM | Mar | 0.10% | -0.50% | 0.20% | 0.70% |
| Building Permits | Mar P | 1390k | 1372k | 1538k | __ |
| Housing Starts | Mar | 1380k | 1502k | 1356k | __ |
| New Home Sales | Jan | 722k | 587k | 745k | 712k |
| Existing Home Sales | Mar | 4.05m | 3.98m | 4.09m | 4.13m |
| Leading Index | Mar | -0.20% | -0.60% | 0.30% | — |
| Durable Goods Orders | Mar P | 0.50% | 0.80% | -1.30% | -1.20% |
| GDP Annualized QoQ | 1Q A | 2.30% | 2.00% | 0.50% | — |
| U. of Mich. Sentiment | Apr P | 51.5 | 47.6 | 53.3 | — |
| Personal Income | Mar | 0.30% | 0.60% | -0.10% | 0.00% |
| Personal Spending | Mar | 0.90% | 0.90% | 0.50% | 0.60% |
| S&P Cotality CS 20-City YoY NSA | Feb | 1.12% | 0.90% | 1.18% | 1.19% |
Source: Bloomberg; P=Preliminary, T=Third Reading
For illustrative purposes only. Past performance is not indicative of future results. Neither past actual, projections, nor other forward looking statements regarding future financial performance of markets are only projections and actual events or results may differ materially.
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The Core Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The Core Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
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ISM Manufacturing Index measures manufacturing activity based on a monthly survey, conducted by Institute for Supply Management (ISM), of purchasing managers at more than 300 manufacturing firms.
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The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index seeks to measures the value of residential real estate in 20 major U.S. metropolitan areas. The U.S. Treasury index is based on the recent auctions of U.S. Treasury bills. Occasionally it is based on the U.S. Treasury’s daily yield curve.
The Leading Economic Index provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term.
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