Why has market sentiment made a 180-degree turnaround in just one month? Behind the tech stock boom, three major headwinds are quietly sweeping through Wall Street...
After a turbulent first quarter, investors had hoped that the US stock market would rebound in April, traditionally a 'strong month.' However, reality may be harsher than historical patterns suggest, as a convergence of negative forces is making the market recovery outlook increasingly uncertain.
Amid a shakeout in the artificial intelligence sector and heightened uncertainty due to the Iran conflict,$S&P 500 Index (.SPX.US)$The market fell by 4.6% in the first quarter, marking its worst start since 2022. Although there was a brief rebound in early April, historical data shows that April is typically the second-best month for the S&P 500 index. However, the current macroeconomic environment has changed significantly.
Marta Norton, Chief Investment Strategist at Empower, stated bluntly that the core anxiety in the current market revolves around one issue: 'the situation in Iran.' This conflict has not only driven up oil prices but also directly threatens the three pillars supporting a stock market rebound: slowing inflation, expectations of Federal Reserve rate cuts, and robust corporate earnings.
Inflation ‘resurfaces’
Among the three major concerns, the resurgence of inflation poses the most immediate threat. While current economic data has yet to fully reflect the deeper impacts of the Iran conflict beyond the energy sector, the upcoming March Consumer Price Index (CPI) is seen as the 'first major blow' to the markets since the escalation of tensions at the end of February.
Warning signals have already emerged: last week's release of the March ISM Prices Paid Index hit its highest level since mid-2022, indicating a sharp rise in input costs for businesses. Russell Price, Chief Economist at Ameriprise, expects the March CPI to show a year-over-year increase of 3.3%, while the core PCE price index — the Federal Reserve's preferred inflation gauge — is projected to peak at 4% in the second quarter.
As energy-driven inflation can easily spill over into core inflation, this raises fears that inflation will exhibit significant 'stickiness,' forcing the Federal Reserve to maintain higher interest rates for an extended period.
Shift in the Fed's monetary policy path
Federal Reserve Chair Powell recently stated that the interest rate path will depend on economic risks. Currently, a strong job market gives the Fed the confidence to 'stay put.' Data shows that the US added 178,000 jobs in March, with the unemployment rate dropping to 4.3%, underscoring the economy’s unexpected resilience and reducing the urgency for rate cuts.
Market expectations have undergone a dramatic reversal. According to the CME FedWatch Tool, traders now anticipate a 72.7% probability that the Federal Reserve will keep interest rates unchanged at its December meeting. Looking back to the end of last year, the market had aggressively forecast four rate cuts by the end of 2026; such optimism has now evaporated completely.
Uncertainty in corporate earnings reports
When the macroeconomic environment becomes obscured, corporate earnings performance emerges as the stock market’s final 'lifeline.'
On the surface, the outlook for corporate earnings remains optimistic. FactSet data shows that the estimated earnings per share (EPS) for the S&P 500 index in 2026 is approximately $320, reflecting a year-on-year growth of 4.1%. Analysts’ guidance for first-quarter performance has also been predominantly positive.
However, hidden behind these optimistic figures lies a structural imbalance: profit growth is highly concentrated in the information technology sector. Should the growth momentum of leading tech companies falter, the overall earnings outlook would become highly fragile. Furthermore, with the conflict in Iran having erupted only a month ago, corporate management may find it challenging to accurately assess the substantial long-term impact of geopolitical turbulence on performance during the upcoming earnings season.
Editor/Rocky