Key Wealth Investment Brief

Key Takeaways

U.S. recessions vs. oil shocks: ignoring history, or new paradigm?

The Strait of Hormuz remains closed. In early Monday trading, oil prices were rising 2–3%. Front-month WTI crude was trading around $96.00 per barrel, while front-month Brent crude was trading around $101.50 per barrel.

Throughout nearly the past 50 years, when the price of oil had doubled in a short period of time, a U.S. recession ensued, according to data from Alpine Macro. Currently, despite a similar spike in oil prices, U.S. recession odds seem low to modest based on many indicators.

Perhaps past U.S. recessions and oil spikes were coincidental. Alternatively, declining U.S. energy dependence (greater energy efficiency) may represent a new paradigm in the relationship between oil and the economy. A major question: how will artificial intelligence (AI) alter oil dependency?

Supply concerns remain. Gulf state oil production is down approximately 57% compared to the start of the Iran conflict, according to Alpine Macro. In addition, the global fertilizer market has heavy exposure to supplies that pass through the Strait of Hormuz, according to data from the American Farm Bureau Federation.

Federal Reserve (Fed) Chair Jerome Powell will likely oversee his last press conference as Fed Chair this Wednesday, April 29, 2026. Coincidentally, central banks throughout the world are meeting this week.

Last week, the Justice Department’s ongoing case against Fed Chair Powell was dropped. With this news, Kevin Warsh will likely be confirmed as Fed Chair soon. Warsh is seen as more dovish than Powell and more inclined to cut interest rates despite uncertainty around the forward path for inflation. The current fed funds rate is the target range of 3.50% to 3.75%.

Global investors are worried that the Iran War has raised the probability of earlier-than-expected interest rate hikes. Global inflation expectations have risen sharply over the past two months as the conflict has continued.

At the same time, a stronger dollar is tightening global financial conditions, intensifying concerns over shortages and weaker economic growth.

Despite concerns about oil prices and inflation, economic momentum is building based on certain metrics, and corporate earnings remain strong. AI strength remains a dominant narrative.

Year-to-date (YTD) rail volumes are at their highest levels since 2019 according to Evercore ISI, generally a good sign for economic activity. In addition, AI capital spending continues to boom, according to data from Bloomberg and Bianco Research.

AI capital spending is driving strong earnings within certain areas of the technology sector. At the start of this year, technology sector earnings were projected to grow 28.6% year-over-year in 2026, according to FactSet. Now, technology sector earnings growth is projected at 38.4% – a dramatic increase.

In aggregate, 2026 full-year earnings growth estimates for the S&P 500 have increased from 14.9% to 18.6% since the beginning of this year. This rate of earnings growth is tremendous and is driving stock prices higher.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed in early Monday trading. The S&P 500 was essentially flat at 7165. The tech-heavy Nasdaq fell approximately 0.2%, while small caps rose approximately 0.2%. International stocks were mixed.

The S&P 500 broke to another new all-time high last Friday after consolidating for much of the week. This price action is healthy.

During the recent snapback rally, the S&P 500 took only 11 days to fully recover its 10%+ loss from March. The recovery was much faster compared to other 10%+ drawdowns since 2000, according to data from Bloomberg.

Corporate earnings remain in focus this week. Thus far, first quarter earnings have been very strong relative to historical patterns. Positive revisions have been driven by the technology sector. More than 40% of the S&P 500’s market capitalization will report this week.

By any stretch of measurement, the earnings strength in the first quarter has been remarkable. Stock prices generally follow earnings, so it’s not surprising to see the stock market at an all-time high.

Fixed-Income Takeaways:

Treasury yields moved higher across the curve last week, with short-term yields moving higher than long-term yields: 2-year Treasury yields rose approximately 7 basis points (bps) last week, while 10-year Treasury yields rose 5 bps. Heavy pending Treasury supply could keep upward pressure on yields this week.

Another factor keeping upward pressure on yields is the Iran War. The war has led to increased interest rate volatility. Investors continue to worry about the war’s impact on future inflation.

In early Monday trading, yields were drifting 1–2 bps higher across the curve. Overall, 2-year Treasuries were yielding 3.80%, 5-year Treasuries 3.93%, 10-year Treasuries 4.32%, and 30-year Treasuries 4.93%.

As noted above, incoming Fed Chair Kevin Warsh is seen as more dovish than Powell and more inclined to cut interest rates despite uncertainty around inflation. Warsh is also more inclined to reduce the Fed’s balance sheet and may alter the Fed’s policy on forward guidance. Despite the impending change in Fed Chair, market participants continue to expect the fed funds rate to stay near its current range of 3.50% to 3.75% for most of 2026.

Credit spreads were relatively calm last week. New issuance continues at robust levels. BBB-rated debt slightly outperformed higher-rated credit last week. A “risk on” tone continues in the credit markets.

Key Takeaways

The Iran War will likely have long-lasting impacts.

Oil prices may remain higher for longer; is $80 per barrel the new $60?

Interest rates may remain higher for longer (absent a substantial deterioration in the labor market).

The U.S. dollar may continue to weaken but won’t collapse.

A new type of drone-centric warfare (low-grade weaponry) could lead to a new balance of power. Drones are much cheaper than the ballistic missiles the U.S. favors, but drones have proven their effectiveness in multiple recent conflicts.

Geopolitical fragility is likely to continue, and nationalism may continue to expand. Nationalist agendas generally result in higher budget deficits and interest rates, while putting pressure on global trade and the U.S. dollar. Sectors like energy, materials, and utilities could benefit, as could real assets like gold and infrastructure.

For further discussion of these issues, please see our recent Key Questions article, entitled What Might Be Some of the Lasting Takeaways from the War in Iran?

Global diversification has been important again thus far in 2026, similar to 2025.

Year-to-date (YTD) through April 17, 2026, the best-performing stock market indices have been non-U.S. emerging markets, U.S. small caps, and non-U.S. developed markets, which have risen 16.3%, 12.9%, and 8.6%, respectively. For context, over the same period, the S&P 500 has risen 4.5%.

The energy sector has risen 23.6% YTD to lead all sectors, despite a pullback last week. Other leaders include materials, industrials, and real estate sectors, which have all risen between 12% and 15% YTD.

YTD laggards include health care and financials both falling between 3% and 4%; technology has risen 4.9%, rallying sharply in recent weeks after a slow start to the year.

The U.S. dollar is essentially flat YTD versus the global currency basket. Real assets like gold, oil, and copper continue to provide important portfolio diversification.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lockstep with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks dipped slightly in early Monday trading. The S&P 500 declined approximately 0.2%, to 7113. The tech-heavy Nasdaq declined approximately 0.3%, while small caps rose approximately 0.1%. International stocks were generally lower.

The S&P 500 rallied sharply last week, decisively moving above the psychologically important 7000 level, while making a series of new 20-day highs. The market has reasserted its trend higher after struggling to break above 7000 since late last year.

The rally has been strong but narrow. At one point in the middle of last week, the S&P 500 had risen 9.8% in the previous 10 trading days, which was at the high end of the 99th percentile of all 10-day returns, according to 3Fourteen Research.

At the same time, on April 15, 2026, the S&P 500 reached an all-time high, but only 12 stocks in the Index reached a 52-week high, a very low number historically, according to Brown Technical Insights. Breadth is weak by this metric.

Another sign of weak breadth – the percentage of S&P 500 issues trading at a 20-day high was approximately 25% at the end of last week and never eclipsed 40% in the recent rally. Typically, this metric will rise above 50% during a strong breadth thrust.

The market is likely to remain choppy, but strong earnings should support higher prices over time. Rate cuts are back on the table with the situation in the Middle East potentially thawing, another possible tailwind to the stock market. Finally, the shape of the implied volatility (VIX) curve has normalized, implying that market participants are looking through the situation in the Middle East.

Fixed-Income Takeaways:

Intermediate Treasury yields declined 5–10 basis points (bps) last week, with short-term yields falling more than long-term yields: 2-year Treasury yields declined 9 bps, while 10-year yields declined 7 bps. A thawing of the situation in the Middle East supported both stock and bond prices.

In early Monday trading, Treasury yields were 2–3 bps higher across the curve. Overall, 2-year Treasuries were yielding 3.73%, 5-year Treasuries 3.87%, 10-year Treasuries 4.27%, and 30-year Treasuries 4.90%.

Credit spreads tightened slightly last week in sympathy with higher equities, continuing their recent recovery. Both investment-grade (IG) and high-yield bond spreads are now back tao pre-conflict levels, implying that investors are not expecting a sustained war in the Middle East.

Another example of a calming market: the spread between single A-rated bonds and BBB-rated bonds has tightened to pre-conflict levels. Some pockets of opportunity remain, but in general, credit spreads are relatively tight once again.

Key Takeaways

Key Takeaways

Ceasefire talks between the U.S. and Iran failed to reach an agreement over the weekend. The U.S. will be implementing a blockade of Iranian ports this week, attempting to close the Strait of Hormuz to Iranian traffic. Volatility continues to create opportunities for active portfolio management.

Crude oil prices have risen more than 65% year-to-date (YTD) through Friday, April 10, and were rising further on Monday. The Strait of Hormuz has been effectively closed to traffic since the start of March, with only a few ships crossing daily according to data from Bloomberg.

Front month futures contracts are trading significantly higher than contracts 12 months out, implying the market remains worried about shortages. In addition, the entire oil futures curve has shifted higher since the start of the conflict. It will likely take multiple years for the oil market to recover, even if the war ended today.

Some interesting trends have emerged during this year’s turbulence. Small caps have outperformed large caps YTD, and value stocks have outperformed growth stocks YTD. Non-U.S. stocks (both emerging and developed markets) have outperformed large cap U.S. stocks. Bonds have provided stable but flattish returns.

Year-to-date, energy has been the obvious sector winner, rising 28.1%; materials, industrials, and utility stocks have all risen by double digits. The financial, consumer discretionary, health care, and technology sectors have all declined between 3 and 7% YTD. On balance, the S&P 500 has declined only 0.1% through April 10, 2026.

Inflation update: the surge in energy prices has pushed headline inflation higher. Consumer sentiment has fallen to all-time lows.

The headline Consumer Price Index (CPI) rose 0.87% month-over-month in March, sharply higher than the recent trend, driven by a surge in energy prices. As a result, headline CPI jumped year-over-year from 2.43% in February to 3.29% in March.

Core inflation, which strips out food and energy prices, remains muted. Core CPI rose 0.20% month-over-month in March. Core CPI rose year-over-year from 2.47% in February to 2.60% in March. It remains to be seen how rising energy prices will affect core inflation in the coming months.

Consumer expectations for 1-year inflation have increased to 4.8% in April, according to the University of Michigan. This metric crested at more than 6% approximately a year ago (Liberation Day), before falling sharply toward the end of last year.

Long-term consumer inflation expectations are not embedded at higher levels yet. Consumer expectations for 5-year inflation were 3.4% in the April survey. The long-term average for this metric is approximately 3.0%.

The University of Michigan’s consumer sentiment survey hit an all-time low last week. When sentiment gets very negative, it is typically a good time to put fresh capital to work.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed to lower in early Monday trading. The S&P 500 fell approximately 0.1%, to 6811. Small caps fell a similar amount, while the tech-heavy Nasdaq was flat. International stocks were generally lower.

The S&P 500 has rallied back into the middle of its recent trading range. The index has reclaimed its 200-day moving average and is now just above its 50-day moving average.

There has been little sign of a breadth thrust during the recent rally. The percentage of S&P 500 issues trading at a new 20-day high is approximately 33%, well short of the 50% required for a breadth thrust. The recent rally is not following a clear bottoming pattern, which does not invalidate the recent strength, but makes it harder to call an interim bottom.

Credit spreads have tightened sharply over the past two weeks. Tightening spreads are a positive sign for risk appetite (and thus equity prices).

The defensive consumer staples sector had been outperforming the cyclical consumer discretionary sector since January. In recent weeks, the equal-weight consumer discretionary index has shown signs of bottoming versus the equal-weight staples index – another positive sign for risk appetite.

Software stocks resumed their downtrend last week. The sector appeared poised for further downside, and we would not attempt to catch the falling knife that is software.

Gold continues to see increased demand as a reserve asset versus the U.S. dollar. Gold remains a valuable diversification tool. For the first time since the International Monetary Fund (IMF) began publishing reserve data in the late 1990s, dollar-denominated reserves (adjusted for valuation effects) have fallen below global gold reserves, marking a notable shift away from the post–Bretton Woods II monetary framework, according to data from Bloomberg.

Fixed-Income Takeaways:

Early last week, on news of the ceasefire in the Middle East, Treasury yields immediately fell approximately 10 basis points across the curve. As the week progressed, Treasury yields drifted higher, reversing some of their initial decline.

In early Monday trading, Treasury yields were essentially flat across the curve. Overall, 2-year Treasuries were yielding 3.79%, 5-year Treasuries 3.94%, 10-year Treasuries 4.32%, and 30-year Treasuries 4.91%.

Both investment grade (IG) and high-yield bond spreads have tightened sharply since the start of the month. Tightening spreads are a sign of increasing risk appetite and generally have positive implications for equity prices as well.

Municipal bond yields are generally trading between 60 and 70% of similar maturity Treasuries, with short-term term paper trading at lower ratios than long-term paper. The lower the ratio, the more expensive municipals are versus Treasuries. A level of 60 and 70% versus Treasuries is generally “fair value” – municipals are neither cheap nor expensive versus Treasuries on this metric.

Key Takeaways:

A market regime change may be occurring as everyone else looks for regime change in Iran.

Last week marked the first week since the war began in which oil and stocks did not move in opposite directions: stocks finished higher as oil prices surged. It would be foolish to extrapolate a trend from just a few days, but the change is still notable.

Several moves beneath the indexes were also eye-catching: value stocks, small caps, and transports outperformed, as did international markets. The outperformance of cyclical sectors might suggest that a U.S. recession is not imminent. For additional context, you can view the replay of Key Wealth National Call: Managing Wealth During the Fog of War, AI Disruption, & An Uncertain Economic Path.

Last Friday, a better-than-expected jobs report corroborated this “no-recession, yet” call. Last week, we also saw a reasonably good retail sales report, a decent NFIB small business survey, and earnings revisions that continued to edge higher.

However, all this data pre-dates the war, and the full impact of the conflict has yet to be fully felt (especially in the U.S.). Too, the war itself does not appear to be over as the end date, and the endgame, continue to shift.

These moves could be reinforcing a broader market regime change around the ongoing disruption from artificial intelligence (AI) that we began highlighting last fall: we continue to advise tilting towards AI adopters and away from AI enablers.

Labor market data has turned volatile, but it hasn’t turned down. Consumer spending continues to hold up. Economic data has been surprising to the upside recently.

In March, 178,000 non-farm payroll jobs were added, the best month for job growth since December 2024. February’s data was revised lower, with a decline of 133,000 jobs; the preliminary estimate had stated a decline of only 92,000 jobs, according to the Bureau of Labor Services (BLS).

February’s data was affected by approximately 30,000 workers being on strike at Kaiser Permanente combined with negative effects from bad weather. With the strike over and weather not affecting March jobs by any meaningful degree, job growth snapped back, and the unemployment rate edged down from 4.44% in February to 4.25% in March.

A new research paper from the Federal Reserve concluded that “breakeven” job growth is near zero, according to the Wall Street Journal. In recent months, job growth has slowed significantly, but overall economic growth has remained steady.

Recent job growth has been concentrated in health care, state government, construction, and leisure & hospitality sectors. Job losses have been seen in information technology, transportation, federal government, and manufacturing sectors.

Retail sales increased more than expected in February, with a +0.6% month-over-month gain despite a weak employment report and winter weather, according to Evercore ISI. The gains were broad-based; vehicle sales also came in stronger than expected for March. While this data is now stale, it reaffirms that the U.S. economy was on solid footing prior to the Iran shock.

On a broader level, the Bloomberg U.S. Surprise Index recently hit its highest level since late 2023, according to data from Bloomberg and Bianco Research. It remains to be seen how the Iran War will affect growth; but prior to the war, the economy remained on strong footing.

Bottom line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk; and although we don’t see history repeating itself in lock step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, on average, the S&P 500 experienced an average annual decline of 14% but historically still finished the year with a positive return 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed in early Monday trading. The S&P 500 rose approximately 0.3%, to 6604. The tech-heavy Nasdaq rose approximately 0.6%, while small caps fell approximately 0.1%. International shares were generally higher.

The stock market rebounded somewhat last week. Corporate earnings continue to power higher. As earnings have risen and the price of the S&P 500 has fallen, the price/earnings ratio has fallen (valuations have dropped).

The stock market is trying to find its feet. Implied volatility (VIX) recently peaked slightly above 30 and has recently fallen to 25. Credit spreads are also improving. A resolution of the situation in the Strait of Hormuz could lead to a strong rally.

From a sector roadmap standpoint, we continue to favor cyclical value sectors such as energy, financials, materials, real estate, and transportation. Many of these sectors fit into our “real investors need real assets” theme. We also believe amidst the recent volatility, investors will continue gravitating towards defensive value sectors such as consumer staples, healthcare, and utilities.

Until we get a resolution to the situation in the Strait of Hormuz, the stock market will likely be very choppy. Even with a resolution, energy prices may remain somewhat elevated due to damage to infrastructure in the region.

Fixed-Income Takeaways:

After rising during March, Treasury yields declined somewhat last week: 2-year Treasury yields fell 7 basis points (bps), while 10-year Treasury yields fell 9 bps. Treasury yields across the curve are still significantly higher since the start of 2026.

In early Monday trading, Treasury yields were 2-3 bps higher across the intermediate portion of the curve, while 30-year yields were slightly lower. Overall, 2-year Treasuries were yielding 3.86%, 5-year Treasuries 3.99%, 10-year Treasuries 4.34%, and 30-year Treasuries 4.90%.

Market participants seem uncertain about the forward path of the fed funds rate. Prior to the start of the Iran War, approximately 60 bps of rate cuts were priced into the forward curve. As of the end of last week, only approximately 10 bps of rate cuts were priced in, as market participants continue to worry about inflation. The current fed funds rate is the target range of 3.50% to 3.75%.

Credit spreads tightened last week, reversing much of the recent widening we saw in March. New issuance slowed last week, providing a tailwind. After reaching a peak of approximately 93 bps in mid-March, investment-grade corporate bond spreads dropped to approximately 82 bps last week, tightening by 7-8 bps for the week.