Market Thoughts: The chance for peace is now...

I’m almost always listening to music. Life’s soundtrack. As I sat down to write, a song by The Fantastic Shadows popped into my head: “The Time for Peace is Now.” It’s a brilliant fusion of soul and gospel; a tasteful twist of funk added in for good measure. It caught my ear the instant I heard it.

Markets are leaning into optimism for ending the war in the Gulf and reopening the Strait. It’s in everyone’s interest. But collective interest is never preordained. What’s helped support risk assets? The resilience of the global economy. Also, the resounding strength of earnings.

Markets are forward-looking. If something impacts the economy or corporate earnings, investors anticipate where we’re heading and react. The pace of those reactions marked ‘headline-by-headline’ as a recalibration of risk and opportunity. Investors are back in a ‘positive vibe’ mood.

We are 60% of the way through European earnings. STOXX 600 forecasts were calling for 4-5% growth year-over-year. We’re running around 8-9%. We continue to pencil in 6-8% for the quarter. Energy and communication services are the driving force, coming in at +35%. Financials are growing earnings at +15%. Revenue growth for the index is about flat.

We’re 85% of the way through U.S. earnings. Consensus growth for the S&P 500 (SPX) is now running at +25%. Revenues are growing +10%. Earnings beats are +6-8% above forecasts, with 80% of companies beating. Analysts looked aggressive coming into this earnings season. They underestimated.

The SPX has added about $9 trillion in market capitalization since the start of April. Consumer discretionary, communications services and technology are leading the scoreboard, with earnings growth of +40-45%. Materials are coming in strong as well, up +40%.

Earnings are goading animal spirits; they’ve helped keep multiples in check. Exuberance? Absolutely. But, with a few exceptions, it’s been rational. The standout—where the pace seems ahead of itself—is semiconductors. The breadth of the current market rally remains too narrow.

Tech stocks are doing their best Buzz Lightyear impression. To infinity and beyond? I hope not. That tends to end badly. The NASDAQ has powered on. On a relative basis to the SPX it continues to outperform by leaps and bounds. That’s worth paying attention to.

Market buoyancy is being fueled by earnings and the continued strength of corporate balance sheets. We’re due a pause, if for no other reason than to temper risk-taking turning into chasing. Investors, by nature, are optimists. Left unchecked, markets eventually become one-sided.

The ability of investors to look through the worst of the energy shock has been remarkable. They’ve anchored on the fundamentals as guidepost. Regardless of a ‘hoped for’ speedy reopening of tanker traffic in the Strait, there’s a lag effect looming. That may help calm enthusiasm.

It’s important to keep an eye on how high markets have retraced from recent lows. We’re playing for less upside than a month ago. The fact that we’re back in a bull market should serve to inform how to calibrate the amount of risk being taken.

Until the facts change, I don’t believe current market direction is a signal to cut and run from risk. But like my earlier observation, it’s path dependent on where the headlines take us. There is momentum to be traded, up and down. I expect a bit of each as investors attempt to catch their breath.

“The chance, the chance for peace, is right now, right now, right now…”

The Fantastic Shadows (aka Little Shadows), “The Time for Peace is Now.”

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 5/7/26

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

INDEX DEFINITIONS

The STOXX Europe 600 (commonly called the STOXX 600) is a premier stock market index tracking the 600 largest and most liquid companies across 17 European countries. It serves as a primary benchmark for the broader European equity market, covering approximately 90% of the region's free-float market capitalization.

The S&P 500 (Standard & Poor's 500) is a stock market index tracking the performance of 500 leading U.S. publicly traded companies. It covers roughly 80% of the total U.S. market capitalization and is widely considered the best single gauge of the broader American economy and large-cap equity market.

The NASDAQ Composite is a stock market index that tracks the performance of all common stocks and similar securities listed on the NASDAQ stock exchange. It is heavily weighted toward technology and growth-oriented companies and is widely used as a benchmark for the performance of U.S.-listed tech and innovation-focused equities.