Onwards and Upwards, with Conditionality

Today began as a somewhat quiet news day with a few companies reporting earnings and scant major economic news releases. However, just prior to the U.S. equity market open, Iranian Foreign Minister Abbas Araghchi announced on the social media platform X (formerly Twitter) that “In line with the ceasefire in Lebanon, the passage for all commercial vessels through the Strait of Hormuz is declared completely open for the remaining period of the ceasefire.”¹ Almost immediately following this announcement, President Trump announced that the U.S. blockade of Iranian ports would remain until “OUR TRANSACTION WITH IRAN IS 100% COMPLETE. (emphasis his)”²

The current détente rests in conditionality across five major entities: The U.S., Iran, Israel, Lebanon and Hezbollah, which is the U.S.-designated terrorist organization with operations spread around the world but rooted inside Lebanon’s borders. The U.S. and Iran have primary roles, but the Israeli/Lebanese ceasefire (with Israel’s military activities focused on Hezbollah within Lebanon) carries increased weight given Araghchi’s announcement this morning: We emphasize his specificity about the Strait’s opening contingent on a ceasefire, and we also underscore President Trump’s continued use of economic pressure to force the Iranians to the negotiating table.

Time is another key consideration. The ceasefire that began late Tuesday, April 7, carried a two week expiration, and the Iranians announced earlier today that they will not accept another temporary ceasefire but instead want the conflict in the Middle East to “end here once and for all.”³ While markets continue to anticipate favorable resolutions, we must respect the conditionality of the current peace and will continue to monitor developments and share our perspectives.

From the conflict’s start, the S&P 500 fell 7.7% at its lowest point, and global stocks, using the MSCI World Index as a proxy, dropped 8.4%. To be sure, other geographies saw more pronounced down moves, especially in continental Europe and select emerging nations susceptible to oil price shocks. Ironically, the average intra-year peak-to-trough decline for the S&P 500 over the past 30 years is closer to 14%, with that figure skewed by some significant downside moves during periods including the dot com denouement, the Global Financial Crisis and the COVID-19 response.

What made the recent volatility appear more acute was that, for the roughly one month of negative price movements in equities, very few other asset classes provided recompense. Bonds across issuer types, real estate, precious metals, agricultural commodities, most fiat currencies, cryptocurrencies and infrastructure assets all declined in value. Quite simply, if you didn’t own hydrocarbons or very short duration bonds denominated in U.S. dollars, for the month of March, you saw negative performance. As we have shared in prior Weekly Five publications, this is not a reflection of diversification’s shortcomings but simply a market unsure of how to absorb a parabolic increase in energy prices and uncertainty about the conflict’s length.

The recovery thus far has been notable. Financial media has appropriately focused on “the streak” with the historically tech-heavy NASDAQ composite index having closed in positive territory for 13 straight trading sessions (as of press time). Using Northern Trust data, this is tied for the fourth longest streak of all time, and it represents the longest winning streak in 35 years. Earnings season will be key to understanding how durable the tech recovery may be, with the current streak catapulting the tech sector to all-time highs. 

We were recently interviewed on global financial media, and the question came up about the importance of Fed policy among investors right now. As noted above, central bank policy is always important, but, in the immediate term, we think central bank policy in Japan, Europe and the UK are more important than in the U.S. Japan is seeing some economic momentum, but once dormant inflationary pressures are testing a new Prime Minister and a populace conditioned for deflation, and Europe and the UK are sluggish as discussed earlier. Further, central bank policy focuses on shorter-term interest rates, and our concerns on interest rates rest with where longer-term interest rates may settle.

During the Iranian conflict’s throes, the 10-year U.S. Treasury bond, which we regard as the cornerstone of global finance due to its connection to mortgage rates and other consumer borrowing costs, saw its yield rise to just below 4.5%. A move above 4.5% would put 5% in play, which represents a ceiling not reached since the summer of 2007 — nearly 19 years ago.

Using our analogy that interest rates act like a resistance ramp on the treadmill of economic growth, the global economy has enjoyed extremely low interest rates for decades: Should that resistance ramp elevate, capital markets would need to adjust to several realities. First, higher interest rates mean that future cash flows are less valuable; if I can invest in bonds backed by a stable government with the ability to tax, all other asset classes must compete with lower-risk assets that suddenly provide investors with compelling income opportunities. Second, debt issuers without such taxing authority must entice lenders with higher yields — and in areas like commercial real estate or riskier corporate credit, investors may seek more compensation in the form of even higher yields. Finally, dividends to stockholders, who sit last among all claimants on a firm’s assets, become less valuable as well.

Again, we have an optimistic forward view, and we do not think interest rates will necessarily move higher. But should inflation expectations increase, or should the Trump administration seek pro-growth policies heading into midterms not supported by the bond market or other variables, we would  anticipate some upward pressure on interest rates. Fed policy in the very near future will be dominated by Kevin Warsh’s nomination process, but we are more focused on longer-term interest rates. 

As we have highlighted over the past few weeks, if we were to apply a book title to earnings prognostications for this year and next, it would be Great Expectations. Based on Bloomberg data, S&P earnings estimates are expected to rise 17% this year and 15% next year, with sales growth in the upper-single-digit range. Further, earnings estimates continued to increase throughout the conflict.

So far, we have heard from a smattering of financial services, technology and consumer-focused companies. Year-over-year growth in credit and debit card spending across the major reporting banks thus far ranges from 5% to 9%. Further, credit card delinquencies were flat-to-down across J.P. Morgan, Citigroup, Bank of America and Wells Fargo, which corroborates some of the macro data we track from the Fed and other sources. Dutch semiconductor equipment manufacturer ASML raised its 2026 sales forecast despite noting China’s share of global chip shipments is declining. The company’s CEO highlighted that supply will likely fall short of demand given AI enthusiasm across sectors and geographies.⁴ Taiwan Semiconductor, the leading semiconductor foundry in the world, also reported strong earnings, highlighting leading-edge process technologies with expectations for continuation into next quarter.⁵ PepsiCo also successfully navigated a more promotional environment and revenue rose 8.5% thanks to pricing strategy and innovations within their snack business. Netflix lowered their next quarter’s revenue guidance, but its more negative stock reaction appeared to be due to company-specific considerations, and they did outperform on revenue expectations.

Next week, there will be more financial sector earnings coupled with some technology company reports, with 28 S&P 500 companies releasing earnings and guidance. We will be focused on immediate reactions to Middle East news, with capital expenditure guidance of most interest to us within the tech sector.  

¹ Araghchi, Seyed Abbas (@araghchi). "In line with the ceasefire in Lebanon...". X. 17 April 2026.

² Trump Says Blockade to Remain After Iran Declares Strait Open. The Wall Street Journal. Accessed 17 April 2026.

³ Ibid

⁴ ASML lifts 2026 forecast as surging AI chip demand boosts new orders. Reuters. Accessed 17 April 2026.

⁵ TSMC Reports First Quarter EPS. TSMC News. Accessed 17 April 2026.