Climbing that wall of worry

By the end of Friday afternoon, the S&P 500 had risen 0.8% to close at a fresh record, while the Nasdaq Composite Index was up 1.6% to its own all-time high. Both indices are up for four consecutive weeks. Talk about climbing a wall of worry. It is fair to say that statistics do not tell the whole story; the technology sector has been a primary driver of the S&P 500’s recent climb to record highs, up 17% on the month. The Philadelphia Stock Exchange Semiconductor Index, universally known as the SOX, has gained 47% in the past 18 trading days. Energy, would you believe, is one of the worst-performing sectors this month.

To be fair, the US earnings season looks like it’s going pretty well, with just over 25% of the S&P 500 having reported earnings. According to FactSet, for Q1 2026, the blended (year-over-year) earnings growth rate for the S&P 500 is 15.1%, so far. FactSet goes on to add that both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of those surprises are above recent averages.  A decent earnings season, along with the hope that a conclusion to the war may come sooner rather than later, is contributing to gains in US stocks this month.

A different picture is emerging in Europe: earnings are expected to grow by a much more muted 3% to 4%, but this figure drops to near stagnation when the energy sector is excluded. Stocks, particularly US ones, may have rallied strongly after the March correction, but it’s worth noting that yields on US Treasuries have not budged. The news that the probe into Powell was dropped to facilitate Warsh’s appointment as the new Fed Chair sparked a modest rally in 2-year Treasury yields, on the hope that he is more open to a cut at some point this year.

Looking ahead to the week, markets will continue to focus on the war and earnings. Four of the Magnificent 7 release Q1 results, including Microsoft, Amazon, Meta and Alphabet. The list of household names reporting this week, from a range of sectors, is almost endless. Apple will also present its first update since the announcement of CEO Tim Cook’s departure.

On the macro front, we have central bank policy meetings across the major developed economies, as rate setters gather to set monetary policy in the US, Canada, the eurozone, Japan and the UK. My bet is that there will be no change in the US, the UK, or the euro area, but all will talk about the issues created by the Iran war, as highlighted by the flash PMIs released last week. Powell will be quizzed on his retirement plans and on whether he will remain on the board as a member, as he is entitled to do.

Stocks seem to be opening on a slightly positive note after rumours that Iran has submitted a new proposal to the US aimed at reopening the Strait of Hormuz and easing tensions. Brent crude currently trades around $100 a barrel.