1. The Middle East Conflict, Now in its 10th Week, Remains the Top Story in Financial Markets
The week opened with Iran's most serious provocation since the April ceasefire, including strikes on the UAE and attacks on commercial ships in the Strait of Hormuz. The tone shifted quickly as regional allies pressed for de-escalation and reports emerged of a framework agreement to end the conflict. Oil fell nearly -10% early in the week, trading near $90 per barrel for the first time since mid-April.
Why it matters: The acute market stress from earlier in the conflict has eased, but the situation continues to drive significant swings in oil prices and broader market sentiment. Progress toward a resolution would be a positive development for markets; a breakdown in talks could trigger more market volatility.
2. Major U.S. Equity Indices Continue to Set New Highs
U.S. stocks extended their rally to six consecutive weeks, with three of the four major indexes reaching new highs. The S&P 500 gained +2.0%, the Nasdaq rose +4.0%, and small-cap stocks climbed +1.5% to set a new high of their own. Most of the week's gains came in a single session, following reports of progress on an Iran deal.
Why it matters: The pattern has been consistent through this stretch of geopolitical uncertainty: headlines create short bursts of volatility, but the market has recovered as conditions stabilize. Six consecutive weeks of gains, including new highs across multiple broad equity indexes, reflects a market that continues to look through near-term uncertainty toward the underlying fundamentals.
3.Leading Tech Companies Report Strong Earnings & Increasing AI Capital Expenditures
The largest technology companies reported earnings over the past two weeks, and their commitment to AI infrastructure spending continues to grow. Alphabet, Amazon, Meta, and Microsoft all beat estimates, but the capital spending figures drew attention. Meta raised its full-year capital spending guidance to $125-145 billion; Microsoft spent nearly $32 billion in a single quarter; and Alphabet's cloud backlog nearly doubled. Combined, the top four U.S. cloud providers are now projected to spend over $660 billion on infrastructure in 2026.
Why it matters: The spending isn't speculative in the way it once appeared, with the group posting strong revenue growth. Given these companies' large index weights, the reported growth is one of the forces pushing broad market indexes higher.
4. U.S. Economic Growth Rebounded in Q1 2026
The U.S. economy grew at a +2.0% annualized rate in Q1, rebounding from the +0.5% pace in Q4 when the government shutdown weighed on activity. The recovery was broad. Business investment led the way, with strength in equipment and software tied to the AI infrastructure buildout. Inventory restocking and a rebound in government spending after the shutdown also contributed, and while the pace of growth slowed from Q4, consumer spending increased.
Why it matters: The economy showed resilience in the first quarter, which included the first month of the conflict. The question heading into the second quarter is whether the conflict begins to weigh on economic activity and whether elevated energy costs create inflation pressures.
5. Federal Reserve Holds Interest Rates Steady
The Federal Reserve held rates steady at 3.50-3.75% in April, but the vote revealed a divided committee. Four members dissented, the most since the early 1990s. Three preferred to remove the easing bias from the statement, while one voted for an immediate rate cut. The split captures the challenge facing policymakers: an economy that continues to expand, an oil shock pushing prices higher, and a labor market that remains stable. The statement acknowledged the uncertainty, citing Middle East developments that could impact inflation.
Why it matters: Rate cuts aren't on the horizon. Market pricing shows no change expected through the end of 2026, with only a modest probability of a cut later in the year.
