Market Perspective - 5 Areas of Focus
At Lighthouse Wealth Partners, we prioritize ongoing communication and take pride in delivering timely updates and meaningful insights to help guide your investment decisions. As markets closed out April, equities capped off a powerful month of gains, bolstered by strong corporate earnings. Our focus this week expands and takes a closer look at 5 areas of market emphasis.
1. April's Powerful Rebound
As reported last week, equities rebounded aggressively throughout April after initial shock (Iran War & Strait of Hormuz challenges) contributed to a sharp market sell-off. The S&P 500 gained 10.49%, the NASDAQ rose 15.32%, and the Russell 2000 advanced 12.28%. International markets also participated in the rally, with the MSCI EAFE Index up 7.56% and emerging markets climbing 14.74%, led largely by strength in South Korea and Taiwan. Equities have built on that momentum and sustained a strong start as May gets underway.
The broader takeaway is that investors appear to be viewing the conflict as disruptive, but not yet severe enough to materially derail global earnings growth or economic activity.
2. Strong Earnings Helped Justify the Rally
The rebound was not driven by sentiment alone. With roughly 85% to 90% of S&P 500 companies having reported earnings, results generally came in stronger than expected. Notably, every sector posted positive earnings and revenue surprises--- a relatively uncommon occurrence.
That strength helped investors shift their focus back toward corporate fundamentals despite ongoing geopolitical uncertainty. Valuations had also become more attractive during the earlier market decline, encouraging investors to re-enter areas of the market that appeared more reasonably priced.
3. Inflation Data Appeared Hot on the Surface with Core Trends Remaining More Stable
March inflation data was heavily influenced by higher energy prices. Headline CPI increased 0.9% month-over-month and 3.3% year-over-year, with gasoline prices accounting for much of the rise. However, core CPI (which excludes food and energy) was more contained at 0.2% month-over-month and 2.6% year-over-year.
Shelter and broader services inflation also continued to moderate. For the Federal Reserve, the key question remains whether higher energy prices stay isolated as a supply-driven shock or begin feeding into broader inflation expectations. For now, inflation pressures remain elevated, but not yet unanchored.
4. The Federal Reserve Remains on Hold
Markets have largely backed away from expectations for aggressive interest rate cuts. The federal funds rate currently remains at 3.50% to 3.75%, while the latest Federal Reserve dot plot suggests only one 25-basis-point rate cut in 2026 and another in 2027.
Energy-driven inflation tied to the Iran conflict has complicated the outlook, while core inflation and labor market data have not weakened enough to force the Fed toward a more accommodative stance. As a result, the higher-for-longer interest rate environment is increasingly becoming the market’s base case rather than a contrarian view.
5. Markets Have Absorbed the Shock - Not Ignored It
The comparison between the 2025 tariff shock and the 2026 Iran and Strait of Hormuz conflict in early Q2 is instructive. In both cases, markets initially sold off sharply amid concerns surrounding slower global growth, inflation pressures, and broader macroeconomic disruption. In both cases, markets eventually stabilized once investors concluded the broader economic spillover would likely remain contained.
The broader lesson for investors is that geopolitical events can create significant short-term volatility, but sustained market declines typically require a more lasting deterioration in earnings growth, credit conditions, interest rates, or consumer demand.
