April brought a market narrative defined by two forces pulling in opposite directions: a geopolitical shock that rattled confidence early in the month, and an earnings-driven rebound that pushed the S&P 500 to new record highs by late April. The U.S.-Iran conflict, now in its eighth week, has kept oil near $100 per barrel, complicated the Fed’s path, and forced investors to reckon with a world where inflation risks are geopolitical as much as they are cyclical. Yet corporate fundamentals, particularly in AI and technology, have proven more resilient than many expected, and markets have shown a remarkable ability to look through near-term shocks toward longer-term earnings potential.

Market Overview

After a 9.1% drawdown, the S&P 500 surged 11% over the last 12 trading days to a new record high, breaking above the 7,000 level for the first time(Raymond James). Equity markets rebounded on hopes for a resolution to the Middle East conflict, with tech stocks and the AI theme leading the gains, with the U.S. tech sector up 11% so far this month. (BlackRock)

The recovery, however, masks genuine cross-currents beneath the surface. The “Magnificent Seven” have declined approximately 12% year to date, with four of the seven, Microsoft, Tesla, Apple and Alphabet, down double digits. Given that these companies still represent roughly one-third of the S&P 500 by market capitalization, their underperformance has been a significant drag on index-level returns (Mutual of America). At the same time, CapEx as a percentage of revenue among S&P 500 companies continues to reach multi-decade highs, suggesting businesses are reinvesting aggressively in their future growth.  AI is accounting for up to 75% of the CapEx increase from 2025. Ai development requires huge upfront capital for infrastructure (data centers, servers, chips). We’re still waiting to see if this investment flows to increased revenues and earnings. (Fidelity)

Outside the U.S., the picture is more strained. The global economy is again disrupted by the outbreak of war in the Middle East. Under the assumption of a limited conflict, global growth is projected at 3.1 percent in 2026, below recent outcomes and well under pre-pandemic averages. Global inflation is expected to tick up in 2026, with pressures concentrated in emerging market and developing economies, especially commodity importers with pre-existing vulnerabilities. (International Monetary Fund)

Federal Reserve & Policy

The Fed finds itself in an uncomfortable spot: with inflation re-accelerating and labor markets still gradually cooling, the Fed’s dual mandate is pulling in opposite directions, pointing to prolonged patience. Markets have pushed out the start of easing, now penciling in 25 basis point moves at the September and December FOMC meetings. (FXStreet)

Market consensus now calls for zero interest rate cuts this year, a reduction from the two cuts anticipated at the start of the year. The market is also pricing in the possibility of a rate hike in 2026, given the potential for upward pressure on inflation from rising energy prices. Chair Jerome Powell described current monetary policy as “mildly restrictive,” implying a bias toward eventually lowering rates rather than raising them. (Howland Capital)

The transition at the Fed adds another layer of uncertainty. With Fed Chairman Powell’s term expiring in May 2026, a potential new chair may result in some uncertainty around the direction of policy messaging (iShares). Academic work on central bank credibility, including Bernanke and Mishkin’s seminal research on inflation targeting, underscores that leadership transitions at central banks can shift market expectations even when underlying economic conditions remain unchanged.

Economic Landscape

The macro picture is best described as resilient but decelerating. The U.S. economy grew 2 percent in 2025 despite major shifts in the policy environment and a government shutdown in Q4. Strong, broad-based productivity growth underpinned buoyant economic activity while employment growth slowed, in part due to sharply lower immigration flows. Inflation moved sideways during 2025 as tariffs boosted goods prices while services inflation moderated. (International Monetary Fund)

A baseline scenario for 2026 has real GDP growing close to potential, the unemployment rate holding around its current level, and core inflation beginning to gradually ease toward 2% later in the year. But other outcomes are plausible, risks to the labor market and inflation both tilt in unfavorable directions, toward a weaker labor market and greater persistence of above-target inflation. (Federal Reserve Bank of St. Louis)

On the fiscal side, general government debt has risen to 123.9 percent of GDP, and the current account deficit remains large at 3.7 percent of GDP (International Monetary Fund). The IMF and CBO have both flagged that the fiscal trajectory represents a growing tail risk — a theme consistent with the academic literature on fiscal dominance, which argues that sustained deficit spending can complicate the central bank’s ability to anchor inflation over time (Sargent & Wallace, 1981; Leeper, 1991).

Asset Class Snapshot

Equities have been defined by a tug-of-war between valuation compression and earnings expansion. Even at its maximum drawdown in response to the Iran conflict, the S&P 500 fell less than 10%, as expectations for accelerating earnings growth offset P/E valuations that declined by as much as 20%. (Fidelity) S&P 500 earnings are projected to grow approximately 16% in 2026, with estimates revised higher by about 1.8% year to date despite geopolitical uncertainty. (Mutual of America) The “productivity J-curve” framework (Brynjolfsson, Rock & Syverson) remains relevant here: firms investing heavily in AI and intangible capital are seeing that spending reflected in earnings before full productivity gains register in macro data.

Fixed income remains in a state of tension. Treasury yields have moved higher on both the short and long ends of the curve, as inflation concerns and a continued lack of fiscal discipline have overridden the traditional flight-to-quality dynamic that typically drives yields lower during geopolitical stress. (Howland Capital) Markets expect the 10-year Treasury yield to remain in a range of 3.75–4.25%, with returns likely to be primarily income-driven rather than price-appreciation-driven. (LPL Financial) BIS research on equity-bond correlations suggests that in inflation-uncertain regimes, the diversification benefit of sovereign bonds is structurally diminished, a dynamic still very much in play.

Gold has been the standout asset of April. Gold’s role as a diversifier and left-tail hedge has become even more important as investors seek alternatives to traditional portfolio allocations, particularly given that stock-bond correlations soared to 30-year highs during the post-COVID inflation spike. (State Street) J.P. Morgan forecasts gold prices averaging $5,055 per ounce by Q4 2026, while Goldman Sachs projects gold reaching $4,900 per ounce by year-end, citing central bank buying and ETF inflows. (USAGOLD)

Themes to Watch

Three questions are shaping the investment debate as April closes. First, how durable is the ceasefire? While the two-week ceasefire has eased near-term tensions, transit through the Strait of Hormuz remains well below pre-conflict levels, and oil prices — while down from their peak — remain well above pre-conflict levels and are still up more than 40% year to date. )Raymond James)

Second, how much of the AI earnings story is real versus priced in? Hyperscaler mega cap tech companies’ estimates for capital spending from 2026 to 2030 are up over 25% since October. (BlackRock) Yet the academic literature on general purpose technologies, from David (1990) on the productivity paradox to Brynjolfsson et al. on the J-curve, cautions that measured productivity gains tend to lag investment by years, suggesting patience is warranted before declaring the AI thesis fully validated.

Third, how do allocators navigate a late-cycle environment where the traditional toolkit is less reliable? In this environment, earnings quality and valuation discipline are likely to be the primary drivers of returns. (Mutual of America) That points toward diversified portfolios that balance risk-asset exposure with high-quality income, real assets, and strategies less dependent on a single macro outcome.

– Zenith Wealth Partners

Sources:

• IMF, World Economic Outlook: Global Economy in the Shadow of War, April 2026.
• IMF, Article IV Consultation with the United States, April 2026.
• St. Louis Fed (Musalem), The Economic Outlook and Monetary Policy, April 1, 2026.
• Bureau of Economic Analysis, GDP Q4 2025 Third Estimate, April 2026.
• BlackRock Investment Institute, Weekly Commentary, April 2026.
• Fidelity Investments, Stock Market Outlook, April 2026.
• Mutual of America Capital Management, Economic & Market Perspective, April 2026.
• Raymond James, Weekly Investment Strategy, April 17, 2026.
• Howland Capital, 2026 Federal Reserve Interest Rate Outlook, April 2026.
• State Street Global Advisors, Gold 2026 Outlook, 2026.
• LPL Research, Fixed Income Outlook 2026, December 2025.
• Brynjolfsson, E., Rock, D., & Syverson, C., The Productivity J-Curve, NBER.
• Bernanke, B. & Mishkin, F., Inflation Targeting: A New Framework for Monetary Policy?, Journal of Economic Perspectives, 1997.
• Sargent, T. & Wallace, N., Some Unpleasant Monetarist Arithmetic, Federal Reserve Bank of Minneapolis Quarterly Review, 1981.
• David, P., The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox, American Economic Review, 1990.
• BIS Quarterly Review, The Correlation of Equity and Bond Returns, December 2023.

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.