The S&P 500 Index and its associated ETFs, including SPY, VOO, and JEPI, surged to record highs last week, continuing a bull run that began on March 30. The index has soared nearly 13% from its March low, adding trillions in market value. This rally is being driven by two primary catalysts: escalating geopolitical tensions in the Middle East and a robust corporate earnings season.
Geopolitical tensions are centered on the US-Iran conflict and the status of the Strait of Hormuz. The situation remains volatile; assets initially jumped after Iran announced the Strait was open, a statement promoted by former President Donald Trump. However, the situation reversed on Saturday when Iran closed the Strait and fired on several ships, accusing the US of not adhering to agreements. The Wall Street Journal reported the US military is considering boarding Iranian ships. Analysts suggest this posturing could be part of negotiations, with the conflict's market impact potentially normalizing later in the week.
Concurrently, the earnings season is accelerating. Ten percent of S&P 500 companies have already reported, including major banks. According to FactSet, S&P 500 earnings are estimated to have grown by 13.2% year-over-year, marking the sixth consecutive quarter of double-digit growth, with actual figures potentially nearing 20%. This week, hundreds more companies will report, including key defense contractors like General Dynamics, RTX, and Northrop Grumman, as well as Tesla, IBM, Boeing, and American Express, likely increasing market volatility.
Further influencing the market are upcoming economic data releases, including US retail sales and PMI numbers. Retail sales data for March, expected to show a slowdown to 2.4% YoY growth, will be scrutinized for signs of inflation impact from the Iran conflict. Flash manufacturing and services PMI data will also be released on Thursday.
Market futures on Tuesday indicated continued strength, with Dow futures climbing 273 points. Investor sentiment is being buoyed by the artificial intelligence trade and strong earnings, with J.P. Morgan raising its year-end S&P 500 target to 7,600 and forecasting a 58% YoY increase in AI capital expenditure to $775 billion. However, political uncertainty persists, with the Senate confirmation hearing for Federal Reserve chair nominee Kevin Warsh potentially raising questions about central bank independence.
