Author：Currency Explorer
AI Podcast: A New Way to Listen to the News Download MP3
After a turbulent first quarter, investors had hoped that US stocks could rebound in April, a traditionally strong month. However, reality may be more brutal than historical patterns, with multiple negative forces converging and making the market recovery prospects uncertain.
Affected by the reshuffling of the artificial intelligence industry and the strong uncertainty brought about by the conflict in Iran, the S&P 500 fell 4.6% in the first quarter, marking its worst start since 2022.Although US stocks saw a brief rebound in early April, and historical data shows that April is often the second-best performing month for the S&P 500, the current macroeconomic environment is vastly different.
Empower's chief investment strategist, Marta Norton, bluntly stated that the core anxiety in the market right now is only one thing: the "Iran situation." This conflict has not only driven up oil prices, but also directly threatened the three pillars supporting the stock market rebound: slowing inflation, expectations of a Federal Reserve rate cut, and strong corporate earnings.
Inflation has resurfaced.
Of the three major concerns, rising inflation is the most pressing threat. While current economic data has not yet fully reflected the profound impact of the Iranian conflict on sectors beyond energy, the upcoming March Consumer Price Index (CPI) is seen as the first major blow to the market since the escalation of the conflict at the end of February.
Warning signs have emerged: the March ISM Prices Paid Index, released last week, recorded its highest point since mid-2022, indicating a significant increase in input costs for businesses. Russell Price, chief economist at Ameriprise, predicts that the March CPI may rise by 3.3% year-on-year.The core PCE price index, the inflation gauge favored by the Federal Reserve, is expected to peak at 4% in the second quarter.
Because energy-driven inflation is highly likely to spread to core inflation, the market is worried that inflation will exhibit strong "stickiness," thus forcing the Federal Reserve to remain on a high-interest-rate track for longer.
The Federal Reserve's monetary policy path is changing.
Federal Reserve Chairman Jerome Powell recently stated that the path of interest rates will depend on economic risks. Currently, a strong job market gives the Fed the confidence to remain on hold. Data shows that the U.S. added 178,000 jobs in March, and the unemployment rate fell to 4.3%, with the economy's stronger-than-expected resilience reducing the urgency of interest rate cuts.
Market expectations have reversed dramatically. According to the CME Group interest rate watch tool,Traders currently expect a 72.7% chance that the Federal Reserve will keep interest rates unchanged at its December meeting.Looking back at the end of last year, the market had made aggressive predictions that there would be four interest rate cuts before the end of 2026, but that optimism has now vanished.
Uncertainty in corporate financial statements
When the macroeconomic environment becomes shrouded in uncertainty, corporate profitability becomes the stock market's last lifeline.
On the surface, the current corporate earnings outlook remains optimistic. FactSet data shows that the S&P 500's estimated earnings per share (EPS) for 2026 is approximately $320, representing a year-over-year increase of 4.1%. Analysts' guidance for first-quarter results is also generally positive.
But hidden behind the optimistic figures is a structural imbalance: profit growth is highly concentrated in the information technology sector.If the growth momentum of leading technology companies falters, their overall profit prospects will become extremely fragile. Furthermore, with the conflict in Iran having erupted only a month ago, corporate management may find it difficult to accurately assess the substantial damage to long-term performance from geopolitical instability during the upcoming earnings season.
