Nicola Wealth Market View
April brought a sharp rebound in global equity markets following the late-February sell-off triggered by the conflict in Iran. Gains have once again been concentrated in a small group of stocks, with technology and semiconductors driving much of the recovery, while earnings, rather than economic data, are providing the primary support for valuations.
While the rally has restored confidence, the underlying backdrop remains more fragile than the headline returns suggest. Long-term inflation expectations are anchored, but rate expectations have flipped from cuts to potential hikes, and elevated oil prices continue to weigh on the global growth outlook.
At the same time, several longer-term risks remain in focus. The closure of the Strait of Hormuz represents the largest oil supply disruption on record, and the duration of the conflict will shape both inflation dynamics and central bank policy responses in the months ahead.
In an environment where market leadership is narrow and geopolitical risks remain elevated, we continue to believe that a disciplined and diversified approach is the most effective way to navigate evolving risks and opportunities.
Below is a condensed version of Chief Economist Rob Edel’s Market Commentary, offering key highlights from April’s market activity. To read the full commentary, click here.
Markets rebounded after approaching correction territory
Following a difficult March, during which both the S&P 500 and S&P/TSX traded down nearly 10% from their year-to-date highs, equities recovered sharply in April. The S&P 500 returned 10.5% (total return, USD) and the S&P/TSX rose 3.8% (total return, CAD), with emerging markets, led by South Korea, posting the strongest performance.
According to Strategas, the S&P 500 took just 11 days to reclaim the 9.1% drawdown caused by the start of hostilities between Iran and the U.S./Israel, marking the fastest recovery from a correction of at least 8% in 75 years.
Despite the conflict, U.S. stocks are trading at historically elevated valuation levels.
Technology and semiconductors continue to lead
Big tech continues to drive market performance. The NASDAQ returned 15.3% in April, while the S&P 500 equal weight index, a proxy for the average stock, returned 7.9%. Since the conflict began on February 28, the NASDAQ has gained close to 10% while the average S&P 500 stock has declined modestly.
Semiconductors led the way, with the PHLX Semiconductor Index rising for 17 consecutive days and returning more than 38% for the month. The strength extended beyond U.S. markets, with TSMC, Samsung, and SK Hynix powering much of the outperformance in emerging markets.
Earnings are driving markets, not economic data
The rally has not been purely driven by macroeconomic data. Citigroup’s U.S. and Eurozone Economic Surprise Indices have turned lower since the conflict began, but earnings have continued to improve. Société Générale highlights that the past four months have seen the largest percent wage increase in MSCI All-Country World Index profits on record, outside of a recovery from a recession.
Importantly, the strength has broadened beyond technology to include sectors such as oil and gas and mining. Strategas forecasts that 2026 earnings growth for the S&P 493, the index excluding the Magnificent 7, will broadly match the Magnificent 7 in Q2 before gradually outpacing it through the remainder of 2026 and into early 2027.
Interest rates re-emerge as a key risk
While earnings drive long-term returns, near-term valuations remain sensitive to interest rates. Société Générale points to U.S. Federal Reserve rate moves as a primary driver of valuations and returns.
Based on futures market pricing, many Developed Market central banks, including the Bank of Canada, have flipped from pricing in cuts before the war to now pricing in potential rate hikes in 2026.
The Fed appears finely balanced. Two cuts were largely expected before the conflict, but futures markets are now pricing in roughly a 50% chance of a 25-basis point hike in the Fed funds rate by mid-2027. Long-term inflation expectations remain anchored, with 10-year breakeven rates remaining rangebound at relatively low levels.
Oil supply disruption remains the key wild card
The war in Iran and its impact on global oil supply remain the key wild card. According to the World Bank, the closure of the Strait of Hormuz has resulted in a global loss of more than 10 million barrels per day, the largest decline in oil supply on record. Brent crude jumped more than USD 45 per barrel in March and reached USD 120 per barrel in late April.
Goldman Sachs has raised its Q4 forecast to USD 90 per barrel for Brent and USD 83 per barrel for WTI, while futures markets have Brent above USD 80 in December. Polymarket assigns an approximately one-in-three probability that the Strait reopens by the end of May. In an adverse scenario where the Strait fails to reopen in the coming weeks, JP Morgan sees oil spiking above USD 150 per barrel.
We continue to question whether current market pricing fully reflects the downside risks a prolonged disruption could pose to the global economy.
For deeper insights from our Chief Economist, get access to the full commentary
Disclaimer
This material contains the current opinions of the author, and such opinions are subject to change without notice. This material is distributed for informational purposes only and is not intended to provide legal, accounting, tax or specific investment advice. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. All investments contain risk and may gain or lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. All values sourced through Bloomberg, unless otherwise specified. Nicola Wealth Management Ltd. (Nicola Wealth) is registered as a Portfolio Manager, Exempt Market Dealer, and Investment Fund Manager with the required securities commissions.
