Between now and then, we’ll get a few more earnings reports, but early in earnings season, the news seems positive if a little muted. The market is back in positive territory, and the worst potential outcomes of everything from tariffs to Iran have rolled off investors’ backs.
The good news for us is that April has once again been a turnaround for the market. More on that in a moment.
Weekly Update
April has been a rocket ship for the stock market for somewhat questionable reasons.
The market was down because of the Iran conflict/war, and as that has moved toward a tentative ceasefire, the “risk on” trade took hold. It wasn’t earnings or great economic data that caused the pop, simply undoing damage that didn’t need to be done in the first place.
Call me skeptical that this pop will hold.
April’s Tentative Bounce
In 2025, early April marked the bottom for the market, and stocks rallied hard for the rest of the year.
The drop early in the year was due to speculation that tariffs would ruin the economy, which didn’t come to pass. And the market’s move higher was largely an undoing of the tariff pessimism and pricing in newfound growth.
This year, the last day or two of March may have been the bottom if the trend holds, although I see this move as more tentative than last year.
Employment is Holding Up
One of the first signs of weakness is the job market, and it’s been holding up.
The unemployment rate is rising slowly long-term, but is also dropping over the past few months. It seems that unemployment is in a relatively low range, and the recent volatility is just that, volatility, more than a sign of an improving economy.
But it’s hard to be too negative if tariffs, AI, and rising energy costs can’t topple the economy and the jobs market. Maybe the economy is more resilient than we thought?
GDP is Growing
Speaking of economic growth, GDP is still expected to be positive in the first quarter, but the estimates have now dropped to just above 1%, according to GDPNow.
The risk here is energy.
If energy prices remain stubbornly high and suck money from the rest of the economy, we could see investment and employment in non-energy sectors slow. It would be a slowly boiling frog more than a financial collapse kind of moment.
But for now…things look fine.
AI Isn’t Disruptive…Yet
And we haven’t seen this looming threat from AI come to pass. Prognosticators have predicted 50% of white-collar jobs will be gone in 6 months, or maybe it’s next week? Who can remember all of these terrible predictions?
I don’t tend to buy into the “AI will disrupt everything” hype, so I’m not surprised job losses haven’t hit. But that also begs the question: What’s the return on this multi-trillion-dollar buildout?
If GDP growth is anemic and AI isn’t replacing people…where’s the ROI?
AI could still disrupt the economy for better or worse, but it just hasn’t happened yet, and the market seems to be OK with that as long as the investment phase continues.
There’s Always Something to be Optimistic About
For a true market drop to occur, there needs to be pessimism across the board. In 2008, job cuts were prevalent, companies started going bankrupt, and there was nothing to be excited about.
The last three years have given investors something to buy at every turn. The AI trade lasted a few years, and this year the opportunity has shifted to energy, industrials, and semiconductor equipment and memory.
$Microsoft(MSFT)$ $NVIDIA(NVDA)$ $Amazon.com(AMZN)$ $Alphabet(GOOGL)$ $Apple(AAPL)$ $Tesla Motors(TSLA)$ $Meta Platforms, Inc.(META)$ $Visa(V)$ $Eli Lilly(LLY)$
I’m still worried the froth is just moving from one portion of the market to another — $Wal-Mart(WMT)$ $Costco(COST)$ $Caterpillar(CAT)$, and Quanta Services all trade for over 40x earnings — but that’s worked in recent years.
As we go into earnings season over the next few weeks, I’m eyeing the opportunities and threats facing the market today. There are still great values to be found in companies the market doesn’t see as stable or benefitting from the AI buildout. And I’m seeing risks from that buildout growth coming to an end as early as next year.
Maybe April will be the turning point in 2026, like it was a year ago?
Over the next few weeks, we’ll likely learn if the move will last or was misplaced euphoria.
Comments