Technology and AI: American businesses have been putting capital to work at a remarkable pace, and the results have showed up in earnings. S&P 500 companies have reported first-quarter earnings growth of approximately 27%, which marks the strongest quarter since late 2021 and the sixth consecutive quarter of double-digit year-over-year growth. Roughly 83% of reporting companies have beaten analyst expectations.
AI is pulling forward enormous levels of capital investment, and the companies supplying that infrastructure (semiconductors, cloud platforms, and data center operators) have broadly exceeded expectations. Large-cap technology names have been the primary engine of the market’s recovery off its late-March lows.
Business investment in AI and technology is doing the heavy lifting that the consumer, squeezed by persistent energy and goods price inflation, simply cannot provide right now. It does not make the broader picture painless, but it does explain why markets have recovered more quickly than many anticipated. Whether that momentum can be sustained in an environment of elevated costs and tighter financial conditions remains the key question.
Iran and energy: Oil prices have pulled back meaningfully from their March highs, as ceasefire negotiations between the U.S. and Iran have advanced further than many expected. Negotiators appear to have reached a framework for a 60-day memorandum of understanding, though the deal still requires presidential approval. Strikes continued this week, and crude loadings inside the Gulf remain extremely low with little evidence yet of improved vessel traffic through the Strait of Hormuz.
Previous ceasefire announcements during this conflict produced sharp oil price moves that proved short-lived as conditions deteriorated. A genuine agreement that reopens the Strait would be a significant and welcome development for energy prices and household budgets.
Inflation and interest rates: The Federal Reserve’s preferred inflation gauge, PCE, accelerated to 3.5% year-over-year in March, and April’s Consumer Price Index came in at 3.8%, with energy accounting for roughly 40% of the increase. The Fed has held rates steady for three consecutive meetings.
Markets are now pricing in current rate levels to hold for the rest of 2026 and well into 2027. The prospect of a rate cut this year has effectively been taken off the table. The more relevant planning question has shifted to whether further rate increases become necessary if energy costs stabilize at current levels and inflation continues to broaden.
This is, in many respects, a two-speed economy. Corporate America, led by technology and AI-driven capital spending, is generating strong results. The American household, meanwhile, is absorbing a sustained squeeze from higher energy costs, elevated goods prices, and borrowing rates that show no sign of declining.
Disclaimer: The information above is for general educational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. You should consult with your CPA and/or attorney before implementing any estate planning, gifting, or tax-related strategy.