Market Update April 16, 2026
2026 got off to a normal start as the financial markets focused on the economy, earnings, valuations, and the like. All that changed suddenly on February 28 when the U.S. and Israel launched a coordinated attack on Iran’s leadership, military installations, and nuclear facilities. Since that time, Iran has stopped naval traffic in the Strait of Hormuz. Roughly 20% of the world’s oil supply and an even higher percentage of the world’s fertilizer supply normally passes from the Persian Gulf through this narrow passageway. Iran’s blockade has resulted in a big spike in the price of key commodities such as crude oil and fertilizer, with the latter raising concerns about rising food prices. The financial markets’ focus on the usual drivers of performance have understandably taken a back seat now to assessing what impact the war will have on the global economy and financial assets.
Stocks held up surprisingly well in the first quarter, despite the war, on the expectation that the conflict would be brief and damage to the economy limited. The S&P 500 was down just 4.3% in the quarter. Foreign stocks continued their outperformance from last year. The primary foreign indexes were up double digits in the first two months of the year, only to give up the gains in March. For the quarter, the MSCI EAFE index of established foreign market stocks finished down 1.2% and the MSCI Emerging Market index was down only 0.2%. A ceasefire agreement between the U.S. and Iran in early April has since led to a relief rally in stocks. Large-cap technology stocks have regained their footing, pushing the S&P 500 to a new record yesterday – pretty amazing considering the cease-fire is temporary and the Strait of Hormuz is still under Iranian control.
The sharp rise in oil prices has raised inflation concerns as these costs will eventually funnel to the consumer, initially at the gas pump and down the road in the cost of goods. Prior to the war, financial markets were anticipating the Fed would continue cutting interest rates later this year. Those hopes have been dashed. And while bonds typically do well during geopolitical conflicts in a flight to safety, bonds dropped this time around as interest rates rose in response to the risk of higher inflation. Recall that bond prices and interest rates have an inverse relationship. Thanks to a strong performance in February, bonds as measured by the Bloomberg US Aggregate index managed to finish the first quarter virtually unchanged, down 0.05%.
While the increase in gas prices has been steep, increases of this magnitude are not uncommon and have not typically preceded recessions. It certainly helps that our country is now energy independent and a net exporter of oil. The high prices of goods and expectation of further increases have taken their toll on consumer sentiment. Sentiment as measured by the University of Michigan just hit its lowest level ever. If there is a silver lining to this, it is that consumer sentiment can be a contrarian indicator, not unlike investor sentiment, which also hit a fairly low level last month. When sentiment is bad, forward returns for stocks over the next twelve months have tended to be good. How much longer the economy and financial markets can weather the impasse between the U.S. and Iran remains to be seen.
We are now entering the period during which public companies report their earnings for the previous quarter. Analysts’ expectations remain optimistic for the year and have not yet been adjusted for any impact the war might have on profits. All eyes will be on what insight corporations provide as to their outlook for the remainder of the year in light of the conflict in the Middle East.
Please do not hesitate to reach out to me with any questions you have or anything we might be able to help you with.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®
President
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· The S&P 500 is an unmanaged capitalization-weighted index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The S&P 600 Index is a capitalization weighted index comprised of 600 stocks viewed as having a relatively small market capitalization, chosen for market size, liquidity, and industry group representation. The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally considered representative of the developed international stock market and emerging international stock market, respectively. International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The Bloomberg US Aggregate Bond index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the U.S. Inclusion of these indexes is for illustrative purposes only. Note that bond prices rise when yields fall, and vice versa, due to the inverse relationship between bond prices and yields. Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
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