War? What War? The war with Iran began on Feb. 28. Oil supply lines were disrupted, energy prices soared, inflation fears reemerged, and nervous investors couldn’t sell risk assets fast enough. One month later, all three indices—the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average—were in correction territory. Yet just two weeks after that, on April 15, the market had largely recovered those losses, with the S&P 500 surging to a new record high.
It was a round trip that doesn’t quite add up. A geopolitical shock that blocked a meaningful share of global energy supply—sending crude prices sharply higher—would typically leave a deeper scar on equities. Instead, the market treated it as a temporary disruption: something to be priced quickly, then largely set aside.
That response tells you a lot about what is—and isn’t—driving this market.
It was a round trip that doesn’t quite add up. A geopolitical shock that blocked a meaningful share of global energy supply—sending crude prices sharply higher—would typically leave a deeper scar on equities. Instead, the market treated it as a temporary disruption: something to be priced quickly, then largely set aside.
That response tells you a lot about what is—and isn’t—driving this market.
The Pivot
March belonged to fear. But by early April, investors began pricing in a narrower range of outcomes. Not peace, necessarily—but something short of escalation. A temporary ceasefire, partial reopening of shipping lanes, or simply the absence of further deterioration was enough. Oil prices pulled back from their highs. Inflation data, while firm, didn’t spiral. And earnings season began to deliver.
The result was a rapid repricing of risk. The S&P 500 rallied off its late-March lows in short order, with market breadth improving and volatility receding.
This wasn’t about clarity. It was about the removal of worst-case scenarios.
Earnings, Again
If there is a consistent driver over the past 30 days, it is earnings.
Early results have come in strong, with aggregate surprises running above historical averages and forward estimates still edging higher. Big Tech—still the market’s center of gravity—has largely delivered, but with a shift in tone. Investors are no longer rewarding growth alone; they want evidence that massive AI-related capital spending is producing returns.
At the same time, the rally has broadened. Energy has benefited from higher prices. Industrials and materials are catching a bid tied to infrastructure and data-center buildouts. Even previously lagging sectors have participated, suggesting the market is leaning less on a narrow group of leaders.
The Fed, Still Waiting
Hovering over all of this is a Federal Reserve that has stepped back—but not stepped in.
Rates remain unchanged, but the tone has shifted from patience to tension. Inflation—driven in part by energy—remains above target, with core PCE still running north of 3%. At the same time, growth has not meaningfully weakened, leaving policymakers with little justification to ease.
Complicating matters is a leadership transition. With Jerome Powell stepping down as chair and Kevin Warsh expected to take over, the market faces uncertainty not only over policy, but over the institution itself. An unusually divided vote at the April meeting underscores that point.
For now, the message is simple: the Fed is not in a hurry—and that removes a potential tailwind.
What the Market Is Betting
Put it all together, and the market’s stance looks less like complacency and more like conditional optimism.
Investors are betting on three things:
It’s a narrow path. Remove any one of those pillars, and the narrative shifts quickly. That is essentially the bullish case outlined by Fundstrat’s Tom Lee, who recently said: “For stocks for the year, the upside case is strengthening; the S&P above 7,700 is very probable.” That would imply roughly 7.5% upside from current levels.
There are credible counterarguments. Bank of America sees a more challenging second quarter, with higher rates, a stronger dollar, and limited support for risk assets unless a clear macro resolution emerges. Others point to the historical pattern: higher energy prices tend to slow growth even as they lift inflation.
And after a sharp recovery, valuations are no longer forgiving.
Bottom Line
April didn’t resolve anything. It repriced it.
The war is ongoing. Oil remains elevated. Inflation is still above target. The Federal Reserve is on hold, and a leadership transition is underway. And yet, the market has moved higher—because it believes the worst outcomes are unlikely, and the earnings engine remains intact.
That may prove correct. Or it may prove optimistic.
For now, the market’s message is straightforward: until events force a reassessment, investors are content to look past the conflict.
What war?
And For What It’s Worth…
KFC China is partnering with BYD, the Chinese electric-vehicle giant, to place ultra-fast chargers at KFC locations across the country. BYD will help steer the visits with onboard ordering and location displays. The idea is simple: pull in, order finger-lickin’ chicken and all the fixin’s from the car’s infotainment system, charge the vehicle, and leave roughly nine minutes later—presumably with both driver and battery refueled.
It’s a reminder that the EV transition, like most revolutions, eventually comes down to infrastructure, convenience, and whether someone can sell you food while you wait.
My suggestion: include Wet-Nap brand pre-moistened towelettes with every order, lest drivers find themselves stuck in the parking lot, unable to get a grip on the charging nozzle.
_____
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection remains paramount.
--David
March belonged to fear. But by early April, investors began pricing in a narrower range of outcomes. Not peace, necessarily—but something short of escalation. A temporary ceasefire, partial reopening of shipping lanes, or simply the absence of further deterioration was enough. Oil prices pulled back from their highs. Inflation data, while firm, didn’t spiral. And earnings season began to deliver.
The result was a rapid repricing of risk. The S&P 500 rallied off its late-March lows in short order, with market breadth improving and volatility receding.
This wasn’t about clarity. It was about the removal of worst-case scenarios.
Earnings, Again
If there is a consistent driver over the past 30 days, it is earnings.
Early results have come in strong, with aggregate surprises running above historical averages and forward estimates still edging higher. Big Tech—still the market’s center of gravity—has largely delivered, but with a shift in tone. Investors are no longer rewarding growth alone; they want evidence that massive AI-related capital spending is producing returns.
At the same time, the rally has broadened. Energy has benefited from higher prices. Industrials and materials are catching a bid tied to infrastructure and data-center buildouts. Even previously lagging sectors have participated, suggesting the market is leaning less on a narrow group of leaders.
The Fed, Still Waiting
Hovering over all of this is a Federal Reserve that has stepped back—but not stepped in.
Rates remain unchanged, but the tone has shifted from patience to tension. Inflation—driven in part by energy—remains above target, with core PCE still running north of 3%. At the same time, growth has not meaningfully weakened, leaving policymakers with little justification to ease.
Complicating matters is a leadership transition. With Jerome Powell stepping down as chair and Kevin Warsh expected to take over, the market faces uncertainty not only over policy, but over the institution itself. An unusually divided vote at the April meeting underscores that point.
For now, the message is simple: the Fed is not in a hurry—and that removes a potential tailwind.
What the Market Is Betting
Put it all together, and the market’s stance looks less like complacency and more like conditional optimism.
Investors are betting on three things:
- That the Iran conflict remains contained, or at least manageable
- That inflation, while elevated, does not reaccelerate
- That earnings growth—particularly tied to AI and capital investment—continues to justify valuations
It’s a narrow path. Remove any one of those pillars, and the narrative shifts quickly. That is essentially the bullish case outlined by Fundstrat’s Tom Lee, who recently said: “For stocks for the year, the upside case is strengthening; the S&P above 7,700 is very probable.” That would imply roughly 7.5% upside from current levels.
There are credible counterarguments. Bank of America sees a more challenging second quarter, with higher rates, a stronger dollar, and limited support for risk assets unless a clear macro resolution emerges. Others point to the historical pattern: higher energy prices tend to slow growth even as they lift inflation.
And after a sharp recovery, valuations are no longer forgiving.
Bottom Line
April didn’t resolve anything. It repriced it.
The war is ongoing. Oil remains elevated. Inflation is still above target. The Federal Reserve is on hold, and a leadership transition is underway. And yet, the market has moved higher—because it believes the worst outcomes are unlikely, and the earnings engine remains intact.
That may prove correct. Or it may prove optimistic.
For now, the market’s message is straightforward: until events force a reassessment, investors are content to look past the conflict.
What war?
And For What It’s Worth…
KFC China is partnering with BYD, the Chinese electric-vehicle giant, to place ultra-fast chargers at KFC locations across the country. BYD will help steer the visits with onboard ordering and location displays. The idea is simple: pull in, order finger-lickin’ chicken and all the fixin’s from the car’s infotainment system, charge the vehicle, and leave roughly nine minutes later—presumably with both driver and battery refueled.
It’s a reminder that the EV transition, like most revolutions, eventually comes down to infrastructure, convenience, and whether someone can sell you food while you wait.
My suggestion: include Wet-Nap brand pre-moistened towelettes with every order, lest drivers find themselves stuck in the parking lot, unable to get a grip on the charging nozzle.
_____
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection remains paramount.
--David
RSS Feed