Economic Update 5-04-2026

Economic data for the week included the Federal Reserve keeping policy interest rates on hold, as expected. U.S. GDP for the first quarter grew in line with trend for Q1, in addition to gains in durable goods, and some improvement in consumer sentiment, while manufacturing data was little-changed. Housing data was mixed, with continued deceleration in housing prices.

Equities were positive globally, with the U.S. and Japan outperforming other regions. Bonds fell back as yields rose, along with inflation concerns. Commodities gained again with continued rising oil prices.

U.S. stocks continue to be driven by Middle East developments but more so in recent weeks by U.S. earnings results. Last week, a Tue. slump was caused by OpenAI revenue and user targets not meeting expectations. Aside from the FOMC meeting Wed., it was a big earnings release day for four of the Magnificent 7 stocks. Following that, Alphabet fared best (with the success of TPU chips seen as challenging NVIDIA’s dominance, particularly for certain AI functions like chatbots and agents), while Meta fared poorly (along with higher capex expectations than expected, and substantial bond issuance). There were signs of the continued market dynamic of AI spending versus benefit, which is of course yet to be determined. Middle East developments were few, with the ceasefire extended, but also the Strait of Hormuz blockade, and questions over the 60-day timeline required for the Congressional involvement per the War Powers Act. For April, the S&P 500 gained 10%, its best one-month performance since late 2020, more than offsetting the -5% decline in March.

By sector, returns for the week were led by communications and energy, with the latter up several percent along with oil prices, followed by consumer staples and financials. Materials fell nearly -2%, being the only sector with a negative result for the week. Real estate rose about a percent as well, despite the headwind of higher yields.

By Friday, 63% of S&P 500 firms had reported Q1 earnings, per FactSet. Of the group, 84% have reported a positive earnings surprise, and 81% a positive revenue surprise. (Of course, modern releases are calibrated so that surprises tend to be much more common than disappointments, but regardless, higher numbers are still preferred.) The blended Q1 earnings growth rate has shot up to 27.1%, led by technology, communications, and consumer discretionary (essentially the Mag 7 contributions).

Foreign stocks were mixed, with Japan outperforming the U.S., but Europe, U.K., and emerging markets underperforming. Aside from the Fed, it was a busy meeting week for central banks, with the ECB, Bank of England, Bank of Japan, and Bank of Canada all meeting, but all choosing to leave policy interest rates unchanged. Though, several appear to be on more of a hiking bias, due to the inflation impacts of oil; at the same time, deeper economic impacts would tend to normally move a bank toward easing. In emerging markets, returns were mixed, with a decline in China yet continued momentum in South Korea related to a rally in U.S. semiconductor stocks in recent weeks, while others fell back.

Bonds fell back last week, as higher oil prices again led to concerns over the impact on near-term (and longer) inflation readings. Floating rate bank loans ended up being the only group with positive returns, along with yield rising. Foreign bonds also declined broadly, despite the positive influence of a weaker dollar for unhedged groups.

Commodities saw gains broadly, as energy gains again led the way, in addition to agriculture, offsetting declines in industrial and precious metals. West Texas crude oil prices rose over 8% last week to $102/barrel, with Brent crude oil up to $109/barrel. The length of the Strait of Hormuz closure is obviously weighing on sentiment, in addition to fears of potential shortages over time. In interesting oil news, the UAE decided to quit OPEC due to its long push for higher production quotas, although it appeared this was likely in the making prior to the recent Middle East conflict, due to a steady secular decline in petroleum demand that incents nations to maximize their own revenue.

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Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.