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U.S. equities have rebounded to record highs, rising 13.6% from their late-March lows. April alone added 10.4% to the rally, the best month for the market since 2020 and the 12th strongest monthly gain in more than 75 years. While a geopolitical dip emerged in March, it was followed by renewed investor risk-taking. Several indicators, including stabilizing housing permits, suggest markets may continue climbing despite ongoing concerns.
The labor market has alternated between positive and negative prints over the past 11 months, with net job creation modestly positive overall. Over the past few years, hiring has cooled, driven mainly by changes in immigration policy and an aging population. Although there are pockets of softer hiring, artificial intelligence (AI) does not appear to be causing widespread layoffs.
Investors are also watching early signs of stabilization. Initial jobless claims notched their lowest total since 1969 in late April, alongside other recent indicators pointing to a steadier labor market. The outlook remains focused on whether AI-driven job losses emerge, while also considering the possibility of AI job creation as new roles develop.
With a Federal Reserve leadership transition toward Kevin Warsh, the article notes that monetary policy decisions are made by a majority of the 12 voting members of the Federal Open Market Committee (FOMC), not only the chair. Warsh has said he favors lower interest rates, but the piece argues his stance appears out of sync with the rest of the FOMC.
At the FOMC meeting in late April, interest rates were left unchanged. However, there were four dissents—the most since 1992—three of which opposed including an “easing bias” in the statement at that time. The article attributes the caution to upside risks to inflation, including from higher energy prices, and suggests FOMC members may wait for greater clarity regarding the conflict in the Middle East.
The rally may be vulnerable to renewed escalation in the Middle East, particularly if disruption to trade in the Strait of Hormuz lasts longer than expected. The piece references expectations for reopening around mid-year and argues that, because much of April’s rally coincided with de-escalation, the risk of a prolonged supply bottleneck is real.
Even so, the article maintains that economic impacts should remain manageable and are unlikely to trigger a meaningful slowdown. It also suggests that any further pullbacks would likely be viewed as buying opportunities.
Valuations are described as elevated, with the S&P 500 trading back above 20 times forward (next-12-month) earnings. The article adds that U.S. equities have been at rich multiples since the pandemic, with the benchmark above 20x for 63% of the time since first crossing that threshold in April 2020.
Despite higher valuations, the piece argues they have not been a headwind to returns. It cites a 147.5% increase in the S&P 500 over the past six years, or 16.3% annualized—about double the long-term average.
Support for the rally is attributed to earnings strength. Next-12-month earnings expectations have risen 137% cumulatively over the past six years. While sell-side consensus points to mid-teens earnings growth, the article says expectations have been moving steadily higher, diverging from historical patterns and providing fundamental support. It also notes that information technology, energy, and materials have shown notable strength, and that first-quarter earnings results so far (with two-thirds of market cap reporting) have been solid, with strong delivery and upside surprises across sectors.
The article continues to favor non-U.S. equities relative to domestic stocks. Emerging markets (EM) are highlighted as particularly compelling despite recent strength, supported by robust revisions to earnings expectations and a constructive fundamental outlook. Valuations in EM are described as less challenging than in the U.S., and the piece argues that the idea that “the stock market is not the economy” applies even more strongly in many EM countries, including those that are significant oil importers.
Developed non-U.S. equities are also expected to benefit from positive earnings revisions and attractive valuations, though to a lesser degree.
Markets have quickly reclaimed new highs, and the article characterizes the underlying backdrop as supportive: labor market stabilization and a view that economic fallout from Middle East tensions will remain manageable. Elevated valuations call for selectivity, but the piece argues history suggests investors need not avoid new highs—particularly when earnings expectations remain firm. The recommended approach is to stay disciplined, use volatility to deploy capital, and modestly favor non-U.S. equities with stronger earnings revisions and more reasonable valuations.
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