Market Update

Economic & Market Update | April 2026

A Resilient Economy in the Face of Geopolitical Uncertainty & Stubborn Inflation

Incoming data through mid April suggests the U.S. economy continues to remain resilient in the face of ongoing geopolitical uncertainty and sticky inflation. This trend is expected to continue in 2Q26 and through the back half of the year. Growth expectations have drifted closer to the 2% range, reflecting strong consumer spending despite a more cautious consumer and a robust business investment. The labor market has been gradually loosening, with hiring slowing and job openings declining, though unemployment remains relatively low by historical standards. Consumer balance sheets are beginning to show strain at the margin, particularly in lower income cohorts, but overall spending has not broken down. The backdrop remains late cycle, with geopolitics, inflation, and earnings top of investor minds this month.

Inflation progress has become more uneven in recent readings. Long-term, inflation has been above the Fed’s 2% target for nearly 5 years. Headline measures have risen due to higher energy prices as the Iran Conflict remained front and center, but core inflation has proven to be sticky as well, particularly within services. Shelter and wage related components continue to slow only gradually.

The Federal Reserve has responded by maintaining a patient policy stance, emphasizing data dependence and signaling that rate cuts may be pushed further out than markets initially expected. Financial conditions have tightened modestly as a result, and real rates remain restrictive. The CME Fedwatch Tool is currently pricing in only 1 rate cut in the back half of the year. The path forward for the Fed increasingly appears to be one of fewer (or no) rate cuts rather than the rapid easing cycle the market had initially hoped for at the beginning of this year.

Fed Chairman Powell’s term as Federal Reserve Chairman is up in May. Investigations in connection to potentially egregious spending on Fed building renovations remains ongoing, and it is likely that Powell’s successor will not be officially appointed until the investigation against Powell officially wraps up. Powell is likely to be succeeded by Kevin Warsh, a former Fed Board Governor with a strong resume and excellent credentials. Warsh is notably more dovish than Powell, so market participants will be watching in the back half of the year for how this dynamic plays out at future Fed meetings. It is unclear whether Powell will quit when his term as Chairman expires or whether he will stay on as a Governor until his full appointment ends. If Powell remains on the Board he could offer a ballast against a more dovish Fed chair.

Equity markets have remained constructive overall. The S&P 500 is modestly positive year to date, but recent weeks have seen increased volatility and a clear rotation beneath the surface. Mega cap technology leadership has paused, while capital has rotated into cyclical and value-oriented areas such as financials, energy, and industrials. Small and mid cap stocks have shown intermittent strength, though they remain sensitive to interest rate expectations. International stocks have also done incredibly well. This shift toward broader participation is a healthy development, but it also reflects a market that is becoming more selective and more dependent on earnings delivery rather than multiple expansion. 1Q26 earnings season kicked off on Monday 4/13 with large money center banks reporting overall solid results. Latest estimates from FactSet call for S&P 500 earnings growth of 12.6% for 1Q26. If this is realized it would be the 6th consecutive quarter of double-digit EPS growth. This earnings season, guidance and commentary around navigating ongoing geopolitical uncertainty and sticky inflation will be key.

Bond markets have adjusted to a higher for longer rate environment. Yields remain elevated across the curve, and the expectation for delayed rate cuts has kept duration volatility present but more contained than earlier in the year. Bonds are once again offering compelling income, particularly in high quality segments such as investment grade corporates and municipals. Importantly, bonds are beginning to behave more consistently as a diversifier during periods of equity volatility, reinforcing their role within balanced portfolios.

Credit markets remain broadly stable, but there are early indications of stress emerging at the margins. Spreads have begun to drift wider from historically tight levels, and lower quality segments are experiencing more dispersion. Delinquencies in certain areas of consumer credit continue to rise, and refinancing risk remains a concern for more leveraged borrowers. While not yet signaling systemic stress, these trends are consistent with a maturing cycle and warrant closer monitoring going forward.

Several themes are shaping the current environment. Market leadership is rotating, with less reliance on a narrow group of large cap growth names. Artificial intelligence remains a long-term driver, but investor focus is shifting toward companies with clear monetization and cash flow visibility. Structural changes in markets, including increased trading accessibility and evolving market infrastructure, continue to support long term growth in capital markets activity. At the same time, policy uncertainty is building, particularly around fiscal direction, global trade, and regulatory priorities, which could introduce periods of volatility.

The current environment reinforces the importance of balance and selectivity. Maintaining diversification across asset classes remains critical. Within equities, an emphasis on quality, earnings durability, and reasonable valuations is increasingly important as markets become more discerning. Fixed income should continue to play a meaningful role, providing both income and portfolio stability. Avoiding overconcentration in any single theme or segment remains key as leadership continues to evolve and macro conditions remain fluid.

April reflects a market and economic environment that is dynamic and resilient. Growth continues as earnings season is underway while inflation remains stubborn and Fed policy remains on hold. Although Iran and the US have announced a ceasefire and the Strait of Hormuz has been opened, financial markets will continue to remain very sensitive to headlines coming out of the Middle East. Markets are adjusting to this reality through increased volatility and broader asset participation. This is a more disciplined environment that rewards thoughtful allocation, risk management, and a long-term perspective.