Inflation
Prices have been rising faster lately — mainly because of expensive gas caused by the Strait of Hormuz blockade cutting off Middle Eastern oil. Last month, the overall cost of living jumped nearly 1%, with gasoline prices surging more than 21% in a single month. The Federal Reserve — which controls interest rates to keep inflation in check — has been keeping rates on hold because of this, and markets currently see almost no chance of a rate cut in 2026. Wednesday's 7% drop in oil prices could change that quickly: if a peace deal holds and oil stays lower, inflation should cool, and rate cuts could come back into play.
Key Takeaway
A peace deal that keeps oil prices down could be the catalyst that finally brings interest rates — and mortgage costs — lower.
March CPI printed 3.3% YoY with a staggering 0.9% MoM gain, the largest monthly acceleration since the post-pandemic reopening surge, driven almost entirely by a 21.2% monthly spike in gasoline prices as Strait of Hormuz disruptions compressed global crude supply. That single energy channel accounts for the full divergence from February's 2.4% YoY print, which had represented near-target progress. Core inflation, while sticky in services components including shelter and healthcare, has not materially reaccelerated; the energy shock is the mechanism, not a broad-based demand inflationary impulse. The Employment Cost Index for Q1 2026 reinforces this: private-sector wages grew just 0.7%, with real purchasing power essentially flat—removing the wage-price spiral risk that the Fed most feared in early 2025.
Wednesday's crude collapse reshapes the near-term inflation trajectory more decisively than any scheduled data release could. WTI spot retreating toward $97 and the front-month contract (CL1!) at $95.08 represent a significant step toward the EIA's pre-conflict 2027 forecast of $76/bbl. If a peace framework holds and Hormuz shipping normalizes over the coming weeks, the gasoline contribution that drove March's surge would reverse, pulling headline CPI back toward the Fed's 2% target faster than any current consensus model projects. The disinflationary channel is structurally clear—lower energy, lower PCE, lower expected inflation. The only live uncertainty is whether Tehran's evaluation of the proposed 14-point memorandum of understanding produces a signed agreement.
The April 29 FOMC meeting held rates at 3.50–3.75% with four dissents—the most fractious committee split since 1992, with three members opposing any easing bias language in the statement. Chair Powell's term ends May 15, with Kevin Warsh expected to assume the chair position and publicly favor lower rates over time, though he commands just one vote in the near term. CME FedWatch currently prices only a 12% probability of any cut in 2026 and approximately a 13–17% probability of a hike—a striking reversal from the three cuts that were priced at the start of the year. Wednesday's cross-asset behavior—equities, bonds, gold, and the dollar all simultaneously repricing in the direction of easing—suggests the market is beginning to discount the inflation constraint lifting, but doing so carefully given that the deal is unsigned and Trump's public ambiguity keeps the binary risk active.
Key Takeaway
The Fed remains frozen at 3.50–3.75% with a hawkish dissent majority prioritizing inflation risk over labor market softness. A signed Hormuz peace agreement is the single most powerful catalyst to restore rate-cut optionality in 2026—potentially moving the easing timeline from "off the table" to "second half" within weeks. Until that deal is executed, the easing bias stays absent from Fed communications.
Risk and Positioning
Investors are feeling optimistic — but cautiously so. Stocks hit all-time highs, bonds rallied, gold climbed nearly 3%, and the dollar weakened, all in the same session — an unusual combination that signals markets are pricing in cheaper oil, lower inflation, and eventually lower interest rates, all hinging on one deal. The market's fear gauge (VIX) actually ticked slightly higher even as stocks hit records, which is a tell: investors are celebrating, but keeping one eye on the exit. The deal isn't signed, and President Trump himself said Iranian acceptance is "perhaps, a big assumption."
Key Takeaway
Markets are optimistic — but the fear gauge rising on an all-time high day tells you investors aren't fully convinced the deal gets done.
Markets are expressing a risk-on posture with meaningful residual uncertainty embedded in the volatility surface. The S&P 500 and Nasdaq hit simultaneous all-time highs—SPX closing at 7,365.12 (+1.46%) and Nasdaq at 25,838.94 (+2.02%)—with the Dow adding 612 points to close within 90 points of 50,000. Sector participation was unusually broad for a geopolitical relief rally: industrials led at +2.7%, followed by technology (+2.2%) and materials (+2.1%), with only energy (-4.2%) and utilities (-1.2%) finishing in the red. The energy decline is structurally expected—crude producers sold off as WTI cratered—but the concurrent rally in industrials signals the market is pricing both the economic benefit of lower energy costs and the supply-chain normalization that a Hormuz reopening would provide.
The cross-asset configuration on Wednesday is analytically unusual and important. Treasuries rallied (2Y -7.6bps to 3.870%, 10Y -7.4bps to 4.352%), the dollar weakened 0.48% to 98.014 on the DXY, gold surged 2.93% to $4,690.91, and equities hit all-time highs—all simultaneously. This is not a standard risk-on pattern where bonds sell off as equities advance. It is a geopolitical relief trade that simultaneously reprices the inflation premium embedded across every major asset class. Critically, the VIX edged higher by 0.17% to 17.40 despite the equity ATH—a modest but analytically significant divergence. A VIX above 17 with the index at all-time highs implies active hedging against deal reversal, fully consistent with Trump's own public caveat that Iranian acceptance is uncertain. The market is pricing progress, not a signed deal.
Gold's behavior deserves particular attention. Spot gold at $4,690 represents a 16% discount to its January ATH of $5,595 and a roughly $600 recovery off the conflict-era lows—but it is not trading as a traditional safe-haven asset. As UBS strategists have noted, gold moved inversely to oil and in tandem with equities on Wednesday: the mechanism is Fed rate-cut repricing, not crisis hedging. Lower oil implies lower PCE, which unlocks the rate-cut optionality that compressed real yields, which is gold's primary structural engine. Goldman Sachs and JPMorgan year-end targets of $5,400 and $6,300, respectively, are explicitly predicated on this chain materializing. The risk of a sharp reversal if the deal collapses is acute: oil spikes, PCE expectations re-accelerate, the Fed-constraint narrative reasserts, and real yields reprice higher—a full unwinding of Wednesday's cross-asset move.
Key Takeaway
VIX at 17.40 on an all-time high day confirms markets are repricing a peace dividend, not pricing a signed deal—the volatility premium remains live. The SPX RSI has moved above 70, a historically overbought signal that typically precedes consolidation. Primary tail risk is deal collapse, which would reverse Wednesday's full cross-asset configuration in a single session.
Sector and Cross-Asset Analysis
Industrial companies — manufacturers, logistics firms, and the businesses that depend on global shipping — led the market Wednesday, rising nearly 3% as investors bet that reopening the Strait of Hormuz would unclog global supply chains. Tech companies followed closely, jumping more than 2% after AMD, a major chip maker, surged nearly 20% on a blowout earnings report driven by demand for AI data centers. Oil and gas companies were the only major group to fall — down about 4% — which is exactly what you'd expect when crude oil drops 7% in a single day. Gold and silver also surged, as investors began pricing in the idea that lower oil eventually means lower inflation and lower interest rates.
Key Takeaway
Industrial and tech companies led the day — oil stocks fell hard as the market starts pricing in cheaper energy if the peace deal holds.
Wednesday's sector rotation was textbook geopolitical repricing with an AI earnings overlay. Industrials led the tape at +2.7%, reflecting supply-chain normalization expectations tied to Hormuz reopening—a sector that had absorbed significant cost pressure from elevated freight rates and energy inputs during the conflict. Information technology gained 2.2%, powered by AMD's decisive earnings beat: the company surged 18–20% after reporting data center revenue well ahead of estimates and lifting forward guidance on AI infrastructure demand. Nvidia, Micron, and Intel each added 2%+ in sympathy, while the PHLX Semiconductor Index (SOX) hit a fresh all-time high. Materials climbed 2.1%, benefiting from both the dollar's 0.48% decline and manufacturing demand expectations tied to a reopening Hormuz. Disney (+4–5% on strong revenues) and Uber (+7% on bookings guidance) added breadth beyond technology.
AI infrastructure earnings continue to drive and validate the bull market's concentration. The Magnificent Seven account for approximately 55% of expected Q2 S&P 500 earnings growth despite representing roughly a third of index market cap, and BlackRock's April update noted the unusual pattern of upward revisions persisting into mid-year—atypical for an earnings cycle at this stage. The equal-weight S&P 500 continues to lag the cap-weighted index by approximately 4% YTD, confirming that breadth improvement is real but still insufficient to call a rotation complete. The SPX RSI above 70 adds a technical caution layer: historically, extended periods above that threshold are followed by consolidation even within bull trends. Small-cap performance (+14% over the last three months for the Russell 2000) offers some counterevidence of broadening participation, though the AI/mega-cap narrative continues to set the pace.
In commodities and currencies, the session produced the largest single-day crude move of the conflict cycle. WTI spot fell approximately 6.2% to $97.74, with the front-month CL1! contract declining 7.0% to $95.08; Brent dropped nearly 8% to $101.27, crossing back below the $100/bbl psychological level for the first time since the initial weeks of the conflict. Silver gained approximately 5%, outpacing gold's 2.93% surge to $4,690 and compressing the gold-silver ratio—a configuration that suggests both monetary (Fed repricing) and industrial (manufacturing restart) demand engines are firing simultaneously. The DXY's 0.48% decline to 98.014 provided a tailwind to dollar-denominated commodities and European equities, with the CAC 40 and DAX both advancing 2%+ on Wednesday as energy relief flowed globally.
Key Takeaway
Industrials led Wednesday's tape—unusual for a tech-dominated bull market and a signal that the peace dividend is being priced beyond AI narratives. Energy's -4.2% underperformance is the tell: the market is trading a Hormuz reopening as partially priced, not speculative. AI earnings concentration remains the structural driver; breadth is improving but leadership has not yet rotated.
Economic Data & Events
Today's Calendar
- 6:30 AM MT — Initial Jobless Claims (how many people filed for unemployment benefits last week) — Moderate Impact
- 8:00 AM MT — Construction Spending (how much was spent building homes and commercial projects in February) — Low Impact
- All Day — Earnings Reports: Shell, McDonald's, Airbnb, Coinbase, and CoreWeave (an AI infrastructure company) — Moderate–High Impact
Today's scheduled data is light — geopolitical headlines from Washington and Tehran will likely move markets more than anything on the calendar. The big event this week is Friday's monthly jobs report, which will show how many Americans were hired in April. Expectations are modest — around 55,000 to 75,000 new jobs added — and a weaker number could actually push stocks higher, because it would give the Federal Reserve more reason to eventually cut interest rates. There's also a leadership change at the Fed: current Chair Jerome Powell's term ends May 15th, with Kevin Warsh taking over.
Key Takeaway
Friday's jobs report is the biggest scheduled event this week — but Iran headlines will drive the market today.
Today's Calendar
- 6:30 AM MT — Initial Jobless Claims (week ending May 2) — Moderate impact
Consensus: ~220K | Previous: ~215K (April 25 week)
- 8:00 AM MT — Construction Spending (February) — Low impact
Consensus: +0.3% MoM | Previous: -0.2% MoM (January)
- All Day — Key Earnings: Shell (SHEL), McDonald's (MCD), Gilead Sciences (GILD), McKesson (MCK), CoreWeave (CRWV), Coinbase (COIN), Airbnb (ABNB) — Moderate–High impact
CoreWeave (CRWV) and Coinbase are highest-watch for AI infrastructure and crypto sentiment signals.
Week Ahead
Friday's April nonfarm payrolls report is the week's marquee event: Wall Street consensus clusters around 55,000–75,000 jobs added (prev. +178K), with unemployment holding at 4.3%. A strong beat reignites rate-hike bets and could partially reverse Wednesday's bond rally; a miss accelerates rate-cut repricing. The preliminary May University of Michigan Consumer Sentiment also releases Friday, which will be the first sentiment read post-deal-news. Powell officially departs as Fed Chair on May 15; any Warsh commentary before then will be watched for policy signal.
What We're Watching
Monetary Policy: Warsh Era Begins
Powell's term ends May 15; Kevin Warsh assumes the chair favoring lower rates over time but commanding one vote. With cut odds at 12% and hike odds near 17%, the first Warsh-chaired FOMC on June 17 is the critical inflection date. A signed Iran deal shifts that meeting's calculus materially.
Rates: 10Y Yield and the Inflation Release Valve
The 10Y at 4.352% sits at the midpoint of its conflict-era range. A sustained Hormuz reopening targets a move toward 4.00–4.10%, compressing mortgage rates and re-energizing duration. A deal collapse resurrects the 4.60–4.75% target that three hawkish FOMC dissents imply.
Equities: Overbought Signal vs. Earnings Momentum
SPX RSI above 70 and equal-weight lagging cap-weight by 4% YTD flag concentration risk. The AI earnings cycle (AMD, CoreWeave, Nvidia) sustains index leadership, but breadth expansion requires either declining rates or cyclical earnings acceleration. Monitor industrials for confirmation.
Key Risk: Deal Collapse and the Oil Reversal
Trump's 'perhaps, a big assumption' caveat is the live risk. A failed Iran framework reverses Wednesday's full cross-asset configuration: crude spikes above $105, PCE expectations reprice higher, the Fed's hawkish freeze deepens, gold retraces, and equities face a 3–5% drawdown scenario.
The Bottom Line
Markets are riding high on hopes for a US-Iran peace deal — but the deal isn't signed, and the mood could reverse sharply if talks fall apart. Iran headlines will set the tone today; Friday's jobs report is the next major scheduled event to watch.
Treasuries are consolidating after a sharp bull move, with the 2s10s spread sitting at +48bps (2Y at 3.870%, 10Y at 4.352%) and both anchored by easing inflation expectations rather than growth deterioration—a meaningful distinction. Thursday's session inherits markets priced for continued Iran peace progress, with Washington-Tehran headlines the primary intraday driver; Trump's public ambiguity about Iranian acceptance keeps the binary risk alive and the VIX elevated relative to all-time high equity levels. The SPX at 7,365 with RSI above 70 flags near-term exhaustion risk; support resides around 7,250, with 7,400 the immediate round-number resistance to watch. Jobless claims and construction spending are secondary to geopolitical flow today—Friday's payrolls report is the scheduled risk event that matters, and a number materially above consensus would complicate the nascent rate-cut repricing that Wednesday's cross-asset move began.
Disclosure — AI-Assisted Content & Regulatory Notice
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
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