April Charts and Considerations: Iran War, The Fed's Pickle, Variability

The first quarter of 2026 ushered in a fresh bout of uncertainty. Prediction proved perilous as the Iran war, and related news headlines, drove short-term market movements, yet the prepared financial plan and portfolio returned to highs despite the volatility – a reminder that economic fundamentals and corporate earnings ultimately reign in market performance. Corporate earnings are on track for six straight quarters of double digit growth, and US Gross Domestic Product (GDP) growth reflects the positive momentum. However, economic headwinds are well past a springtime breeze, and there are factors to watch. The Fed has a tricky path forward with inflation and employment, and the list of geopolitical posturing now includes Iran and the Strait of Hormuz. Please take a few minutes to review thoughts and considerations as spring is turning to summer. (Note the slightly different approach this time around. Rather than video, I added a few visuals for better display of certain points).

After a strong start to the year, markets pulled back broadly in March. Aside from the small company slice of the market, major indices ended the quarter negative. Global-minded investors benefitted from exposure outside the U.S. as well.

• U.S. Small Company Stocks (Russell 2000): +0.89% Q1
• U.S. Bonds (Bloomberg Barclays Aggregate Index): -0.05% Q1
• Emerging Market Stocks (MSCI Emerging Index): -0.10% Q1
• International Stocks (MSCI EAFE ): -1.12% Q1
• U.S. Stocks (Russell 3000): -3.96% Q1

As of April 17th, major indices are back in the green, with smaller companies and international markets leading the way. The following chart shows the same indices as above in order of return.

Digging a bit deeper, smaller, value oriented companies (purple line) have outpaced large, growth oriented companies (orange line) by nearly 14%. As noted in January, the typical U.S. investor was not diversified, considering 38-42% of the large company index was in seven technology companies (magnificent seven). Diversifying away from this top heavy U.S. market provided less volatility and strong relative performance year to date.

The Federal Reserve Board is in a challenging spot with pesky inflation and job loss in eight of the last twelve months. The sweeping tariffs are no more (for now), but energy costs and fertilizer for northern hemisphere growers now provide the inflation pressure. Headline inflation ticked up to 3.30% as the Strait of Hormuz choked supply of key inputs. Multiple Fed governors now suggest a rate increase, as inflation trendlines move away from the 2% target. The good news is the amount of money in circulation (M2 Money Supply) remains stable, which is a major indicator of controlled inflation. Expect a steady Fed approach while additional data emerges and the Iran conflict progresses.

**On a related note, the Fed published a great article on the 2% target, and why it’s publicly known (it wasn’t until Ben Bernanke announced in 2012!). For your next Wednesday night Nerd gathering -click here.

Geopolitical uncertainty is landing blow after blow to the global economy. The Iran War and the Strait of Hormuz is the latest gut punch. The question is: will the economy remain resilient until the final bell?

• Ironically, the Strait of Hormuz may be a more powerful deterrent than nuclear material itself…because it can actually be used or closed. 20% of the world’s oil and 33% of the world’s fertilizer comes through the Strait of Hormuz. With supply choked off, input prices and headline inflation have increased accordingly. China, India, and other emerging economies are most affected.
• The 1970’s energy crises were different. OPEC (Organization of the Petroleum Exporting countries) reigned and everyone bought from their regional supply. Since then, nations have pushed for energy independence and a diverse mix of sources (diversification!!), so all their oil isn’t in one barrel (basket!). In the U.S., we remain a net importer of crude, but we are a net exporter of total petroleum related items (jet fuel, LNG, oil, etc).
• As it relates to the consumer and GDP, only 1.8% of consumer spending is gas. Energy IS a major input across the board though. But, what’s interesting is that since 1973, global GDP has grown nearly 3x (purple line) while global petroleum consumption has only grown 79% (orange line)! In the U.S., petroleum consumption has only grown 1.97% (blue line) over the time. Before 1973, it ‘cost’ nearly 1% of petroleum consumption for 1% of GDP increase. It’s very different now with more diverse sources and methods of energy creation.

All of the aforementioned data points are not meant to minimize the conflict. The point is, there is time before this challenging situation becomes very bad from an economic standpoint, and the world has prepared for something like this since the 1970's. All wars end either in negotiation or destruction. Negotiations are in motion. China is a part of the discussion in Pakistan, and has a significant interest in opening the Strait, as noted above. Not insignificantly, the U.S. and China are scheduled to meet in May to push for a trade deal.

The world is a noisy place. We talk about ‘cutting through noise’ in the context of nonstop headlines and social media posts. What we’re really trying to do is think about probability. How can we make decisions considering the odds of your success? Day to day variability is simply noise. It’s random. Reacting and deciding based upon noise is far too risky. Zooming out, quarters, years, business cycles, and decades make the probabilities clearer. It’s imperative to plan, prepare, and build portfolios with this in mind. We expect a 10% drop at some point each year. In fact, on average, there are two 5% drops per year as well. Sticking to your plan and portfolio philosophy are imperative, especially during the noisiest times. After all, while meaningful wealth can be attributed to skill and hard work over time, extreme wealth is merely luck and variability.

Sources: Ycharts.com, Mitch on the Markets March 30, Geopoliticalfutures.com, Factset.com, ATLFEDnow



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