Back at Record Highs — What’s Changed and What Happens Next

Key takeaways

• Markets have rapidly priced out worst ‑ case risks, with easing oil pressures, stabilizing rates, and resilient earnings helping drive one of the fastest rebounds to new highs on record. 
• Corporate profits remain the most durable support, in our view, with double ‑ digit S&P 500 earnings growth expected to continue and leadership coming from sectors less exposed to higher energy costs. 
• While a near ‑ term pause or consolidation is likely, we think a credible path toward de ‑ escalation could see markets revert to earlier ‑ year leadership, favoring cyclicals, small- and mid-caps, emerging markets, and a balanced growth ‑ value approach. 

What a difference a couple of weeks can make. April began with stagflation fears and a near‑correction in the S&P 500, as conflict involving Iran triggered the largest oil supply disruption in history. Fast‑forward to mid-month, and the narrative has shifted dramatically: major equity indexes are hitting fresh record highs, fueled by optimism around a potential peace deal in the Middle East and continued support from strong and rising corporate profits.

An 11‑day run marked the fastest rally to a new all‑time high following a correction of at least 8% in the past 50 years. That naturally raises the question: is this optimism justified, and where do markets go from here?

What's driving the rebound? 

While outcomes will still hinge on geopolitical developments in the days ahead, we think markets have likely already formed a durable bottom. Below are five factors we believe are behind the sudden shift from shock to strength and the renewed focus on supportive fundamentals.

1. Reduced likelihood of worst-case scenarios – Since the conflict began, we’ve framed outcomes around two variables: how high oil prices would rise and how long disruptions would last. We think a major reason behind the recent relief rally is that markets have priced out the most severe downside scenario of a prolonged war. The ceasefire appears to be holding, shipping may soon resume through Strait of Hormuz, and both Iran and the U.S. seem incentivized to move toward a deal rather than further escalation.
2. Easing oil and interest-rate pressures - Oil prices remain elevated but have fallen roughly 30% from their intraday March peak. Futures markets point to $70 - $75 WTI by year‑ This pattern is consistent with history, as oil prices often peak shortly after geopolitical shocks emerge and then retrace. At the same time, bond yields have appeared to stabilize, with the 10‑year Treasury settling near the midpoint of our expected 4.0% to 4.5% range for the year.
3. Consumer support from tax cuts – While it is still early, the economic impact of the conflict has been muted so far, as consumers continue to show resilience. Higher energy prices remain a headwind, but increased tax refunds from the new tax bill are providing a meaningful offset. According to the latest IRS data, the average refund this year is about $3,500, an 11% increase from last year. In total, we expect household stimulus to reach roughly $200 billion in 2026, helping to more than cushion an estimated $80-$100 billion increase in gasoline and other fuel spending derived from higher oil prices.
4. Rising corporate profits – Upcoming earnings reports are likely to help reinforce the message that the equity bull market remains well supported. First‑quarter earnings season is off to a strong start, and analyst estimates for full‑year profits continue to trend higher (more detail in our earnings insights below).
5. Sentiment reset and the unwinding of defensive positioning – In response to an unprecedented energy shock, many institutional investors increased defensive allocations and implemented hedges to weather heightened volatility. The subsequent unwinding of those positions has likely contributed to the sharp, V‑shaped rebound to new highs.

Earnings strength is hard to ignore 

Investor sentiment can change on a whim, but trends in corporate profits are among the most durable drivers of market performance. On that front, the outlook is encouraging. S&P 500 earnings are expected to grow nearly 12% year-over-year in the first quarter. If realized, this would mark the sixth consecutive quarter of double‑digit earnings growth.

As earnings season unfolds, investor focus will turn to management commentary, particularly around the impact of higher energy costs, which only began to meaningfully affect results late in the quarter. Encouragingly, the primary drivers of S&P 500 earnings growth are not the sectors most negatively exposed to rising oil prices. Technology has seen the second‑largest increase in earnings expectations since the start of the conflict, with first‑quarter growth now projected at roughly 45%. In addition, the energy sector’s sensitivity to oil prices is helping offset cost pressures elsewhere across the market.

While it is still early in earnings season, most major U.S. banks have already reported results, and management commentary points to a generally healthy consumer and corporate backdrop. PNC bank CEO's comment provides an interesting anecdote about the vast gap observed between surveys and actual economic activity. "When you look through at spending patterns, growth in savings, activity levels, loan growth, everything we see day to day in our business is almost at complete odds with the surveys you see on confidence."

Portfolio playbook: Back to how the year started 

Looking ahead, we do not think investors should assume the market is completely out of the woods. The narrative around the conflict remains fluid, and while the probability of the most adverse outcomes appears to have diminished, considerable uncertainty remains around the duration and resolution of energy supply disruptions.

Historically, V‑shaped rebounds have shown a mixed record in sustaining momentum. There have been periods such as late 2023 and the tariff‑induced correction in April 2025 when markets not only recovered quickly but were followed by strong performance. In other instances, equities moved sideways as gains were digested. And in episodes like early 2000 and late 2007, sharp rebounds ultimately marked major market peaks. In the current environment, a pause and sideways phase appear likely, in our view, particularly until oil supplies normalize and physical shortages ease more decisively.

If the path toward de‑escalation remains intact, we would expect markets to gravitate back toward the themes that defined performance earlier in the year, with prior leaders reasserting themselves. This would likely entail cyclical sectors regaining leadership over defensives, small‑ and mid‑caps sustaining relative momentum versus large-caps, and emerging‑market equities continuing to outperform domestic stocks.

From a style perspective, we continue to recommend maintaining balance between growth and value. We see attractive opportunities in industrials, supported by a manufacturing rebound and ongoing infrastructure investment, as well as in consumer discretionary, which could benefit from easing geopolitical tensions and a still‑resilient consumer backdrop.

The bottom line 

Solid fundamentals point to a sustainable market bottom, in our view, even as some uncertainties linger. We think recent volatility, alongside the market’s demonstrated resilience, serves as an important reminder of the value of avoiding headline‑driven reactions and maintaining a long‑term perspective. We believe staying disciplined, diversified, and opportunistic when sentiment sours will continue to serve investors well as the year unfolds.

Angelo Kourkafas, CFA
Senior Global Investment Strategist

_{Sources for all data in commentary: Bloomberg, FactSet} 

The Week Ahead 

Important economic data for the week ahead includes retail sales and pending home sales for March.