U.S. equities extended their rebound last week as the S&P 500 rose 3.6%, the Nasdaq gained 4.7%, the Dow advanced 3.0%, and the Russell 2000 added 4.0%. The dominant driver was the still-fragile de-escalation in the Iran conflict, which helped pull WTI crude down nearly 14% for the week (the largest weekly decline since 2022) and eased some of the immediate inflation fears that had gripped markets. At the same time, the market’s internal leadership continued to reflect the push-and-pull of the AI buildout: S&P 500 chip stocks surged 11% while software and IT services tumbled over 4%, as investors weighed both the upside from rising compute demand and the disruptive pressure that more powerful models may exert on certain software and service business models.

Markets are starting this week on more cautious footing after weekend talks between the U.S. and Iran ended without a permanent ceasefire. The U.S. said Iran rejected its best offer, while Tehran reportedly refused to reopen the Strait of Hormuz absent a final peace deal and turned down President Trump’s demand that it hand over or sell its full stockpile of highly enriched uranium. That leaves the administration facing an increasingly difficult choice between reentering what could be another lengthy round of negotiations or resuming a conflict that has already created economic and political strain. President Trump responded Sunday by announcing a U.S. blockade of the Strait of Hormuz aimed at cutting off Iran’s oil revenues and pressuring Tehran back to the table, though the move also raises the risk of wider disruption across regional shipping lanes. Iran has threatened neighboring ports if its own facilities are targeted, and tanker traffic through the Strait is already showing fresh signs of strain, with two empty supertankers reportedly turning around Sunday after the talks broke down. The market takeaway is straightforward: last week’s relief in oil prices could reverse quickly if this standoff drags on or broadens across the region.

Last week’s inflation data offered an early look at how the energy shock is beginning to filter into the numbers. March core CPI came in a bit cooler than expected at 2.6% compared to a year ago, but headline inflation (+3.3%) reflected a sharp move higher in energy prices, with gasoline up 21.2% year-over-year and energy overall up 10.9%. For now, this still looks more like an energy-led inflation bump than a broad-based reacceleration, but that judgment depends heavily on whether oil prices stay contained. Fed officials continue to sound cautious. Minutes from the March meeting showed policymakers still focused on upside inflation risks, even as they acknowledged some downside risks to the labor market. Consumer sentiment also deteriorated further last week, a reminder that geopolitical shocks and inflation concerns can hit confidence well before they fully show up in spending or hiring data.

AI remains the other dominant narrative shaping equity markets. Last week, Anthropic and Meta each rolled out more powerful new models, reinforcing how quickly the technology is advancing while also putting renewed pressure on software companies to defend their value proposition. On the other side of that trade, the hardware and infrastructure backdrop remained very strong. TSMC reported first-quarter revenue growth of 35% year-over-year to nearly $36 billion, well ahead of expectations, while hyperscalers and semiconductor suppliers continued to point to robust demand for advanced compute and networking. Those crosscurrents help explain why semiconductors led sharply higher even as software struggled.

That brings the focus this week to the start of first quarter earnings season, which may share center stage with geopolitics. Financials will lead off the reporting calendar, followed by several blue chip stalwarts including PepsiCo, Abbott, and Netflix. Earnings expectations remain surprisingly firm despite the recent macro noise. First-quarter S&P 500 earnings are expected to grow nearly 13% from a year ago, led by technology, while full-year earnings forecasts have climbed to roughly 18% growth from about 14% at the end of February. Those estimates still assume the Iran conflict remains relatively short-lived. A longer disruption to energy flows, shipping, or business confidence would likely push those numbers lower. For now, the earnings backdrop remains supportive, but markets are unlikely to look past the Middle East until there is more clarity on whether the latest setback leads back to negotiations or back toward escalation.

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