Weekly Investment Perspective

U.S. equity markets extended their advance last week, with the S&P 500 and Nasdaq Composite closing at all-time highs for a fourth consecutive week. The Nasdaq rose 1.5% and the S&P added 0.6%, though the equal-weight S&P 500 declined, underscoring how returns remain heavily concentrated in a small group of large-cap leaders. Semiconductors did much of the heavy lifting, while software and several cyclically sensitive sectors lagged.

Corporate earnings remained the primary support for markets last week, helping investors look through another round of noisy geopolitical headlines. With just over a quarter of S&P 500 companies having reported, blended first-quarter earnings growth is running above 15%, up from roughly 13% expected at the start of reporting season. The quality of results has also been better than usual, though market reactions have become more selective as valuations remain elevated and investors look for evidence that earnings growth can continue beyond the first-quarter reporting window.

That stronger earnings backdrop does not remove the risks from the Middle East, but it does help explain why markets have been somewhat less reactive to every Iran headline. Oil remains the main transmission channel. WTI crude rose more than 10% last week and finished above $94 per barrel, compared to sub-$60 prices at the start of 2026, as the ongoing closure of the Strait of Hormuz continued to pressure energy markets. For now, investors appear to be treating the conflict as a bumpy diplomatic phase rather than a clear path back to a hot war. However, a sustained supply disruption would represent a renewed inflation shock at a time when the Federal Reserve is already inclined to move cautiously.

Monetary policy also came into focus last week during the Senate confirmation hearing for Kevin Warsh, President Trump’s nominee to lead the Federal Reserve. Warsh emphasized the importance of central bank independence while also calling for a “regime change” in how the Fed approaches inflation and credibility. The hearing itself broke little new policy ground, but Friday’s news that the Justice Department dropped its criminal investigation into Chair Powell’s handling of the Fed’s headquarters renovation likely clears the way for Warsh’s confirmation. For markets, the near-term question is less whether this week’s Fed meeting changes policy, as rates are widely expected to remain unchanged, and more how a leadership transition could affect Fed communication, credibility, and inflation-fighting resolve.

On the economic front, last week’s data painted a generally constructive, if uneven, picture. March retail sales rose 1.7%, well above expectations and representing the strongest monthly increase in a year. While a significant portion of the gain was driven by a surge in gasoline spending, control-group sales, which are more reflective of underlying consumer demand, also exceeded consensus estimates. Other indicators, including flash PMIs and jobless claims, suggested continued economic resilience, even as consumer sentiment remains historically depressed. Still, the disconnect between resilient hard data and depressed consumer sentiment bears watching, especially if higher energy prices begin to crowd out spending elsewhere.

Corporate earnings were again a key support for markets. Roughly 84% of S&P 500 companies reporting so far have exceeded earnings expectations, with notable strength in semiconductors, industrial services, and energy-adjacent businesses. The dominant secular theme remains AI compute and infrastructure demand. Recent results reinforced that the benefits of the AI buildout are not confined to a handful of the largest tech companies as profit growth tied to AI investment is broadening out across semiconductors, power infrastructure, electrical equipment, and construction-related activity. At the same time, earnings season has not been universally reassuring. Software stocks remain under pressure following a disappointing report from industry bellwether ServiceNow, and investors are increasingly scrutinizing elevated capital spending, input-cost pressure, and whether companies can convert AI investment into measurable productivity and revenue growth.

Looking ahead, the coming week will be important for testing several of the market’s current assumptions. The Federal Reserve concludes its April FOMC meeting on Wednesday, where rates are widely expected to remain unchanged. Investors will parse Chair Powell’s press conference for any shifts in tone related to inflation risks stemming from energy markets. Earnings will also take center stage, with five of the “Magnificent Seven” set to report: Amazon, Apple, Microsoft, Meta Platforms, and Alphabet. Eli Lilly will also report. Together, those reports represent nearly $30 trillion in market value and should provide a clearer read on whether AI-related demand is still strong enough to justify rising capital spending and already demanding expectations.

2026 The Long View | First Merchants Bank