Those who stayed the course during the March market volatility were rewarded handsomely in April. The S&P 500 posted its second-best result for the month in the previous 77 years. Entering the month, it seemed as if the market was a coiled spring, waiting on the first green shoots of any peace talks. The progress of these negotiations captured investors’ attention, and the focus on the potential resolution of the Iran conflict, its impact on oil prices, and their downstream effects on the overall economy drove markets sharply higher. As the month moved on, corporate earnings came on the scene to further support the market’s upside move. The current 2026 S&P 500 earnings estimate suggests that first-quarter earnings growth was 15.1%. If this sustains itself through the remainder of the reporting period, it will be the sixth straight quarter of double-digit year-over-year earnings growth. Strong earnings growth can continue to propel the market forward, and it helps to quell hesitations over valuation concerns, which are essentially worries about paying too much now for future earnings. At the current earnings estimate, the S&P 500 is trading at a 19 earnings multiple – moderately elevated but below levels that have often marked market peaks.
In May, it seems that the progress of peace talks in the Middle East could support markets to continue trading around current levels, and markets will begin to grapple with more sustainable long-term themes. The application and speculation over the potential impacts of AI will be a key driver in technology- dominated markets. Firms that are able to implement these tools effectively, turning the promise of enhanced profitability into reality, will reap rewards, but companies that overpromised on these potential benefits may be punished. Alongside the AI narrative, inflation continues to linger. In the coming days, we will have more clarity around how the Fed will approach these pressures. Pending Senate confirmation, Kevin Warsh is poised to take over as Fed Chair on May 15th. This pending changeover in leadership may not completely change the direction of monetary policy from energy-led inflation worries to growth-focused rate cuts, but on the margin, it seems likely Warsh will advocate a more stimulative policy over time. Of course, this is speculation based on his background and previous commentary, but, most importantly, he has pledged to maintain Fed independence, which will maintain our nation’s predictable economic strength in global markets.
Data sourced from Janney's "May Investment Perspectives".
