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     +4.52%
BND     +0.57%

TECHNICAL ANALYSIS:
The S&P 500 closed above 7,000 for the first time in history Wednesday, reaching a new all-time high and fully reversing the 9% drawdown triggered by the war in Iran. The index took just 16 days from its March 30 low to reclaim record territory.  SPY price has now broken back above its 200-day simple moving average and is pressing into new all-time high territory \[LongDash] a technically significant development. The Nasdaq Composite rose for 12 consecutive sessions, its longest winning run since 2009,  and closed the week at record levels as well.

BND price has moved modestly higher as Treasury yields have declined from their recent peaks. The 10-year note finished the week at 4.26%, while the 2-year ended at 3.71% and the 30-year at 4.88%  \[LongDash] all meaningfully below the elevated levels that dominated in March. The trend in bonds remains cautious, but the directional pressure of recent weeks has eased alongside the receding of the energy shock.

SENTIMENT:
The VIX, a measure of equity market volatility, has fallen below 20, approaching pre-conflict levels after spiking above 30 at the height of the conflict in late March.  Credit markets tell a similar story, with the extra yield corporate bonds pay over comparable Treasuries tightening steadily in recent weeks. The improvement is broad-based, with equity volatility, credit conditions, and interest rate volatility all moving in the same direction.  Investor sentiment has shifted decisively toward risk-on, though this has been a flow-driven, headline-sensitive rally \[LongDash] momentum is strong, but geopolitics, flows, and consumer data remain potential sources of disruption.

ECONOMY AND FUNDAMENTALS:
The week’s defining development came on Friday morning when Iran announced the Strait of Hormuz is open to commercial shipping during the 10-day Israel-Lebanon ceasefire. Oil prices fell nearly 10% on the news, and President Trump stated a peace deal with Iran is “very close.”  The reopening of the Strait \[LongDash] through which roughly 20% of the world’s oil and natural gas normally flows \[LongDash] is a significant development for both energy markets and the inflation outlook, and markets responded accordingly with a broad, sector-wide rally.

First quarter earnings season began in earnest this week, with major financial institutions reporting results. Goldman Sachs, JPMorgan, Citigroup, Wells Fargo, Bank of America, and Morgan Stanley all reported  to kick off the season. Results were broadly solid, helping reinforce confidence in the underlying health of corporate America even as the macro backdrop has been complicated by the conflict. Netflix fell nearly 10% after beating earnings and revenue expectations but disappointing with second-quarter guidance that fell short of consensus, and announcing that co-founder Reed Hastings plans to step down from its board. 

A new storyline emerged with increasing market significance this week: the Federal Reserve’s leadership transition. The Senate Banking Committee’s confirmation hearing for Kevin Warsh, President Trump’s nominee to succeed Chairman Jerome Powell, is scheduled for Tuesday of next week. Powell’s term as chair ends on May 15, making the timeline for confirmation very tight.  The prospect of a change in leadership at the Fed, combined with Trump’s renewed comments about his desire to fire Powell, has added a layer of uncertainty to the monetary policy outlook heading into the next FOMC meeting.

On the broader economic front, the data continue to show resilience even as the energy shock works its way through. Higher gas prices appear likely to only partially negate the stimulative impacts of larger income tax refunds, with upper-income households faring best \[LongDash] and with that cohort responsible for an outsized share of spending, the energy price shock alone should not push the U.S. economy into recession.  The coming weeks, with more earnings results and a clearer read on April economic data, will help fill in the picture.

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.