Ceasefire and Lower Oil Prices Send Stocks Sharply Higher: Global equities staged a powerful rally last week following Tuesday’s news of a 14-day temporary ceasefire between the U.S. and Iran. Negotiations are underway between the two countries to end hostilities, subject to Iran’s reopening of the Strait of Hormuz for the safe passage of shipping traffic. Brent crude fell nearly 13%, closing out the week at $95.20 per barrel.

The S&P 500 Index rose 3.7% for the week, bringing its year-to-date performance just shy of breakeven. Except for energy, which was down 4.1%, all other sectors of the S&P 500 posted gains, led by consumer cyclicals, communications services, and technology. Internationally, the MSCI EAFE (developed markets) and the MSCI Emerging Markets Indexes gained 4.0% and 6.6%, respectively. This lifted their year-to-date returns to 6.1% and 10.7%.

Inflation Jumped on Surging Gasoline Prices: The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI), measured year-over-year, jumped to 3.3% in March from 2.4% in February. This was largely due to a 36% surge in average retail gasoline prices to $4.06 per gallon. Core CPI, which excludes food and energy prices, increased only slightly to 2.6% from 2.5% in February.

Interest Rate Fell Slightly, Bond Indexes Moved Higher: The March CPI report was widely anticipated, causing little change in interest rates. Two-year and 10-year U.S. Treasury notes closed on Friday at 3.84% and 4.32%, respectively, down 0.04% and 0.03% for the week. The Bloomberg Aggregate Bond Index was up 0.2% and the Bloomberg U.S. Municipal Bond Index gained 0.8%, lifting their year-to-date returns to 0.3% and 1.0%, respectively.

Job Market Holds Firm: Continuing claims for unemployment benefits dropped to 1.79 million for the week ended March 28 from 1.84 million the week before. This was below the Bloomberg median forecast of 1.83 million and marked a two-year low in the measure. Initial claims for the week ended April 4 increased to 219,000 from 203,000 the week before. While above the Bloomberg median forecast of 210,000, the level of initial claims remained below its 12-month average of 223,000.

Consumer Sentiment Slides: The University of Michigan’s preliminary April consumer sentiment index dropped to 47.6 from 53.3 in March. This marked the lowest level recorded for the index since its inception in 1952. The decline was driven by soaring gasoline prices and concerns associated with the Iran conflict. The index has not been a useful leading indicator of consumer spending in recent years, a period in which unemployment has remained low, wage growth has been positive, and household net worth has reached record levels.

The first quarter earnings reporting period will begin this week, with several major U.S. banks reporting their results. The economy appears to have held up well during the quarter with limited impact from the war. Analysts tracked by I/B/E/S estimate the S&P 500’s first quarter earnings per share growth, measured year-over-year, at 13.9%. If achieved, this will mark the sixth consecutive quarter of double-digit growth. Analysts have held steady with their full-year 2026 S&P 500 earnings per share forecast of over 19% in recent weeks, despite the uncertainties associated with the Middle East conflict. With earnings guidance from reporting companies likely to be cautious, it should come as no surprise if analysts trim their outlooks somewhat for the rest of the year in the coming weeks.

Earnings Guidance Likely to Be Cautious: Absent a speedy resolution of the Middle East war and reopening of the Strait of Hormuz, corporate managements are likely to be cautious with their earnings guidance as the first quarter earnings reporting period kicks off in mid-April. Higher energy prices present a threat to profit margins in many industries as well as to the level of discretionary consumer spending. Higher borrowing costs triggered by rising inflation also tend to place a drag on economic growth.

Wholesale Inflation on the Rise: On Tuesday, the BLS will release its March Producer Price Index (PPI) reports. The median forecast of economists tracked by Bloomberg calls for a 4.6% year-over-year increase, up from 3.4% in February. Core PPI, which excludes food and energy, is estimated at 4.1%, up from 3.9% in February.

Roger Khlopin, CFA
Chief Investment Officer

Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager