From Kinetic Energy…
If March was a lesson in how quickly geopolitical shocks can price into financial markets, April was a masterclass in how quickly they can price back out. After a sharp, energy-driven sell-off triggered by the kinetic warfare with Iran, a breakthrough ceasefire agreement on April 7 raised hopes that peace and stability were within reach.
Oil markets were immediately caught up in the vibe shift. Brent and West Texas Intermediate crude oil prices plummeted the day after the initial ceasefire was announced and by April 17 were down as much as 26% and 24%, respectively, from their wartime highs. But markets remained unconvinced of a lasting resolution, and the global crunch to oil supplies had prices quickly rising again. By the end of April, oil prices were up from where they began the month.
The sharp ping-pong from panic to relief underscores just how much markets are trading on binary geopolitical outcomes and how quickly sentiment can reverse depending on news flow, political jawboning, and the investing zeitgeist.
The Strait of Hormuz is either closed or open; The oil apocalypse is either upon us or avoided.
...To Potential
As the saying goes, “Hope springs eternal.”
With the threat of a prolonged conflict receding (perhaps prematurely) and hopes for a reopening of the Strait of Hormuz rising (also perhaps prematurely), the relief rally across the broader market was aggressive. The S&P 500 erased a near 10% decline in just 11 trading days — making it one of the fastest such recoveries in market history. This led to the S&P 500 crossing the 7,000 mark for the first time ever, with the index ultimately ending April up over 10%. It was its best month since November 2020.
Capital rotated aggressively out of traditional energy and back into sectors defined by their future potential; The common thread linking April’s winners and losers was exposure to the artificial intelligence theme. As a result, Information Technology, Communication Services, and Consumer Discretionary led handedly, since they’re heavily influenced by the Magnificent Seven companies which lead the AI frontier.
On a more granular level, Semiconductor and Tech Hardware companies rose 27% and 13%, respectively, while Media & Entertainment and Consumer Discretionary Distribution & Retail – both of which are tech-adjacent industry groups – rose 21% and 19%. To put it in perspective, there are 25 industry groups in the S&P 500. Only four beat the overall index, and all were tech-exposed.
The market’s focus has firmly shifted from kinetic warfare to a potential future utopia (or dystopia). Will that persist? The answer depends on the inherently unpredictable world of geopolitics. All we can do is wait and see.
Market Recap
Macro
• After February's surprise job losses, the March employment report showed a sharp rebound of 178k jobs, significantly above consensus estimates of 65k.
• Despite an intramonth drawdown of 24% (driven by a détente in the Iran war,) WTI crude oil finished the month up 3.6%.
• The Consumer Price Index accelerated to 0.9% m/m and 3.3% y/y, driven by the increase in energy prices.
• Capital goods orders ex-defense & air rose 3.3% m/m in March, significantly above consensus of 0.5%. The prior month was revised up from 0.7% to 1.6%.
• Copper rose 5.3% to $12,911/mt, in another sign that the buildout of AI data center infrastructure and electrification has raised demand for the industrial metal.
Equities
• In a reversal from a tough March, April’s return of 10.5% was the S&P 500’s best month since November 2020.
• Growth stocks outperformed value stocks by 5.5 percentage points, their best relative performance since December 2024.
• The risk-on environment was not kind to defensive factors. Low Volatility and High Quality stocks underperformed High Volatility and Low Quality stocks by 10.0 and 7.1 percentage points, respectively.
• Emerging markets outperformed U.S. and international developed markets on the strength of South Korean and Taiwanese stocks. These account for over 40% of the index’s weight and were up 30% and 25%, respectively.
Fixed Income
• Buoyed by accelerating economic data, Treasury yields rose by 5 to 8 basis points across the curve.
• Investment Grade and High Yield spreads narrowed by 11 and 49 basis points, respectively. Optimism around an end to the war renewed hopes that worst-case economic scenarios would be avoided.
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