Market Notebook

PRICE ACTION:
Equity prices, as measured by the ticker SPY, and bond prices, as measured by the ticker BND, closed higher over the last week.

SPY     +3.60%
BND     +0.08%

TECHNICAL ANALYSIS:
For the week, the S&P 500 climbed 3.6%, the Dow climbed 3.0%, and the Nasdaq climbed 4.7%,  marking the second consecutive week of gains. SPY price remains below its 200-day simple moving average on a longer-term basis, and the trend cannot yet be characterized as firmly reversed. However, the back-to-back weekly advances represent a meaningful improvement in near-term price action, and the chart is beginning to show signs of stabilization.

Treasury yields declined modestly over the course of the week, and corporate bonds outperformed as credit spreads tightened to levels from late January.  BND price has now posted two consecutive weekly gains as the yield environment has become somewhat less hostile. The technical picture for bonds remains cautious, but the pressure that dominated in February and March has eased meaningfully.

SENTIMENT:
The VIX dropped below 20 for the first time since late February, after briefly touching 28 intraday Tuesday before the ceasefire announcement.  The retreat in the fear gauge is a constructive development and suggests that investor anxiety, while not fully resolved, has moderated substantially from its recent peak. When credit markets and volatility measures move in the same direction as stocks, it generally signals that the rally reflects genuine improvement in investor confidence rather than a narrow or speculative move.  Still, sentiment remains event-driven and fragile, capable of shifting quickly on a single headline from the Middle East.

ECONOMY AND FUNDAMENTALS:
The defining event of the week was the announcement on April 8 of a two-week ceasefire between the United States and Iran, brokered with the assistance of Omani and Pakistani mediators.  The market’s reaction was immediate and powerful. West Texas Intermediate crude futures tumbled more than 16% on the day to close at $94.41 per barrel, its biggest single-day drop since April 2020,  while the VIX dropped over 5.8 points to 20.13, reaching its lowest level since February 27 \[LongDash] before the U.S. began its attacks. The ceasefire, however, comes with significant caveats. The agreement appears to be holding, but with different understandings on both sides of what has actually been agreed to.  Points of active dispute include Israel’s ongoing operations in Lebanon, the question of who controls passage through the Strait of Hormuz, and the fate of Iran’s uranium stockpile. Vice President JD Vance is leading formal peace talks in Islamabad, alongside special envoy Steve Witkoff,  and the outcome of those discussions will be the central driver of market behavior in the weeks ahead.

On the inflation front, the March Consumer Price Index confirmed what energy markets had already been pricing in for weeks. Headline inflation rose 0.9% in March and 3.3% on an annual basis \[LongDash] the largest monthly increase since 2022 \[LongDash] driven by a 10.9% surge in energy costs tied to the conflict.  Core inflation, which strips out food and energy, told a quieter story, rising just 2.6% year over year and coming in slightly below expectations. Perhaps more concerning was the consumer sentiment data released the same day: consumers now expect inflation to reach 4.8% over the next year, a full percentage point higher than they anticipated in March. 

The Federal Reserve remains in a watchful, patient posture. The strong March jobs report in hand, combined with above-target inflation and a still-fluid geopolitical backdrop, leaves the central bank with little reason to move in either direction at its May meeting. The economy, for now, continues to show resilience \[LongDash] but the inflation data is a reminder that the costs of the conflict are beginning to register in the real economy, and the path forward depends heavily on whether this ceasefire holds.

All the best during the week ahead!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.