Key Observations
- Global equities rebounded sharply in April. Strong Q1 corporate earnings, led by mega-cap technology, restored investor confidence after a turbulent start to the year shaped by the conflict with Iran.
- The Federal Reserve held its policy rate unchanged at 3.50% to 3.75% as it weighed inflation pressure from higher energy prices against a softening labor market. April marked Chair Powell’s final FOMC meeting in that role
- Diversification beyond U.S. large cap continued to be beneficial. Emerging markets, international developed equities and U.S. small cap equities all delivered strong returns.
Market Recap
April delivered a sharp recovery for global markets. After a difficult start to 2026 marked by the escalation of the Iran conflict and broader concerns about growth and inflation, investor sentiment shifted during corporate earnings season.
Large cap U.S. equities gained double digits, as the S&P 500 Index returned 10.5% for the month, supported by leadership from communication services, information technology and consumer discretionary. Positive earnings surprises from Alphabet, Amazon and Meta drove much of the upside. The Russell 2000 Index gained 12.2% as easing recession concerns and improving earnings breadth across cyclicals supported a sharp rally. Information technology and industrials led the small-cap space, while energy and health care lagged.
International equities also delivered strong returns. The MSCI EAFE Index rose 7.5%, with broad participation across Europe and Japan. Information technology, industrials and financials led the regional advance, while a weaker U.S. dollar amplified returns for U.S. investors and added more than 2% to the index’s monthly gain. Emerging markets posted the strongest equity performance of the month. The MSCI EM Index climbed 14.7%, propelled by a 32.2% surge in the information technology sector as semiconductor and AI infrastructure demand continued to reaccelerate. Korea, Taiwan and India led individual markets, and the asset class is now up nearly 47% over the past year.
Fixed income produced more modest gains. The Bloomberg U.S. Aggregate Bond Index returned 0.1% as Treasury yields traded in a tight range but ultimately ended the month higher. In April, the Federal Reserve held its policy rate unchanged at 3.50% to 3.75%, citing the need to assess the inflationary effects of higher energy prices alongside a cooling labor market. It was the third consecutive pause and Chair Powell’s final meeting in that role. Credit markets fared better. Spreads tightened on the back of the equity rally and stronger earnings, helping the Bloomberg U.S. Corporate High Yield Index advance 1.7%.
Strength and Resiliency in U.S. Equity Earnings
Q1 2026 earnings season has been the strongest in nearly five years. Year-over-year EPS growth for the S&P 500 is tracking at 27.7% (with 89% reporting), the highest since Q4 2021 and more than double the 13.1% expectation at quarter end. If realized, it would mark the index’s sixth consecutive quarter of double-digit growth and its strongest quarter since Q4 2021.[1]
Mega-cap technology continues to disproportionately lift headline earnings. Strong results from Alphabet, Amazon, Meta and Microsoft drove most of the upside, lifting the "Magnificent 7" earnings growth to 61% versus 16% for the rest of the index.[2] AI capital spending continues to set the pace. Hyperscaler (cloud service provider – AMZN, GOOGL, META, MSFT, ORCL) capex commitments for 2026 climbed to roughly $751 billion, an 83% increase from 2025 spending.[3] That investment is feeding through to revenue and earnings momentum at chipmakers, infrastructure providers and select industrials, while also raising legitimate questions about returns on capital. Additionally, capital spending also outpaced share repurchases by a wide margin, with capex up over 40% year-over-year in Q1 versus a 1% increase in buybacks, something that warrants monitoring.[4]
Looking deeper at specific sectors, seven of eleven S&P 500 sectors are reporting double-digit year-over-year earnings growth. Information technology (+51%), communication services (+49%), materials (+43%), and consumer discretionary lead the index. NVIDIA and Micron Technology were key drivers within information technology, benefiting from strong AI-related demand for semiconductors. Health care is the only sector showing year-over-year declines.
Overall, equities responded constructively, and the risk-on tone was visible across global markets. Beneath the surface, however, the reward for individual EPS beats has been unusually small. The median company beating consensus outperformed the index by just 20 basis points the day after reporting, one of the smallest readings on record.
Strong earnings remain the primary support for current valuations. The S&P 500’s forward P/E of 21x sits above its five-year average of 19.9x and ten-year average of 18.9x, but the multiple is more digestible if 2026 earnings deliver the 21% growth analysts now expect.[5] The path to that outcome requires margins to hold and AI capex to continue translating into revenue. Risks along this path include margin compression, tariffs, energy costs and wage pressures eroding the profitability gains analysts are projecting, and market concentration combined with elevated valuations leaving less margin for disappointment.
In Conclusion
April reminded investors how quickly sentiment can shift when fundamentals reassert themselves. After a turbulent start to 2026, strong corporate earnings and easing tensions in the Middle East provided a powerful counterweight to macro headwinds earlier in the year and lifted nearly every major asset class. The themes from our 2026 Outlook continue to play out. Diversifying away from U.S. large cap has been beneficial, with small caps, international developed equities and emerging markets all leading. AI-related capital spending is broadening into the economy, and companies are delivering solid earnings growth.
We remain mindful of the cross-currents. While valuations are stretched and market concentration is elevated, sentiment has improved meaningfully. Despite this, the macro backdrop remains uncertain with the Iran conflict, tariff implementation and a Federal Reserve on pause. Strong fundamentals are an important tailwind, but they argue for thoughtful diversification rather than concentrated bets. We continue to favor portfolios that are positioned to participate in broadening returns that also protect against the risks introduced by elevated valuations.
Sources
[1] FactSet Earnings Insight as of May 8, 2026
[2] FactSet Earnings Insight, May 1, 2026.
[3] Goldman Sachs U.S. Weekly Kickstart, May 1, 2026. Based on 5 largest public hyperscalers (AMZN, GOOGL, META, MSFT, ORCL)
[4]Goldman Sachs U.S. Weekly Kickstart, May 1, 2026.
[5] FactSet Earnings Insight. May 8, 2026.
Disclosures
The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.
Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.
• S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
• Russell 2000 consists of the 2,000 smallest U.S. companies in the Russell 3000 index.
• MSCI EAFE is an equity index which captures large and mid-cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
• MSCI Emerging Markets captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free-float adjusted market capitalization in each country.
• Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
• Bloomberg U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.
• FTSE NAREIT Equity REITs Index contains all Equity REITs not designed as Timber REITs or Infrastructure REITs.
• Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification.
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