Monthly Update | May 4, 2026

Monthly Market Summary

• The S&P 500 Index gained +10.5% in April, recovering its March decline and setting a new high. Communication Services led all S&P 500 sectors with a +18.5% return, followed by Technology (+17.5%) and Consumer Discretionary (+11.7%). Nine of eleven sectors traded higher as stocks recovered from the March selloff, but eight sectors underperformed the index as mega-cap stocks drove the bulk of the gains.

• Bonds traded lower as Treasury yields rose during the month. The U.S. Bond Aggregate returned +0.1% and underperformed corporate bonds as credit spreads tightened. High-yield’s +1.6% total return outpaced investment-grade’s +0.4% return as credit spread tightening benefited lower-quality bonds.

• International stocks underperformed the S&P 500 as U.S. Growth stocks led during the recovery. Emerging markets gained +14.7% and outperformed developed markets’ +7.6% return, with energy-importing regions like Europe and Japan impacted by the continued oil supply disruption.

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Markets Rebound as Geopolitical Tensions Ease

Back-to-back ceasefires, first between the U.S. and Iran on April 7 and then between Israel and Lebanon on April 16, changed the market's outlook. The agreements removed the worst-case scenario, and the reversal was immediate across markets. The S&P 500 erased all its March losses and went on to set a new all-time high by month-end. The Dow surged over 1,300 points the day the U.S.-Iran ceasefire took effect, its best day in a year. The Nasdaq Index gained nearly +16% during the month, driven by a historic semiconductor rally, and the Russell 2000 small-cap index gained +9.8% and set its own record. The recovery also reached beyond stocks. Credit spreads, which reflect how concerned the bond market is about corporate borrowers, reversed three months of widening in four weeks, and market uncertainty, as measured by the VIX Index, fell to pre-conflict levels.

The relief was broad and fast, but the underlying situation remains unsettled. The Strait of Hormuz, which carries roughly 20% of global oil supply, remains effectively closed, with only a few tankers crossing daily compared to hundreds before the conflict. Oil prices fell sharply on the ceasefire announcements, including the largest single-day decline since 2020, but have since risen back above $100 per barrel. Gasoline remained above $4 a gallon throughout April, and consumer confidence fell to its lowest reading in the University of Michigan survey's 70-year history. The ceasefires reduced fears of further near-term escalation, and investors moved quickly to price that in. However, the oil supply disruption that’s become a part of the conflict has not been resolved.

Investors Benefited from Diversification in Q1

One of the quarter's most significant developments was the performance gap across different areas of the stock market. While the S&P 500 declined by -4.3%, diversified portfolios fared differently. Figure 2 compares three ways to measure the U.S. stock market. The S&P 500 weights companies by market value, meaning the largest companies have the most influence on the index's return. The equal-weight S&P 500 assigns the same weight to each company, making it a proxy for the average stock's return. The Russell 2000 tracks an index of small-cap stocks, and the Nasdaq 100 tracks an index of leading tech companies.

The chart shows a significant gap across company size. The Russell 2000 and equal-weight S&P 500 each gained nearly +1% in Q1, outperforming the S&P 500's -4.3% decline, an indication that smaller companies outperformed in Q1. The Nasdaq 100 returned -5.8% for the full quarter. Investors with diversified exposure across company sizes, styles, and geographies experienced a more moderate quarter than the S&P 500 return suggests.

The gap shows a clear shift in market leadership in early 2026, with multiple catalysts driving the market rotation. In January, investors started moving away from the concentrated mega-cap trade that dominated the past two years, and the average stock quietly outperformed the index. The rotation accelerated in February as concerns about disruption from artificial intelligence spread across the market, particularly among software companies that make up a large portion of growth-style indexes. The March market volatility narrowed the performance gap, but it didn’t reverse it.

The result was a quarter in which market leadership shifted dramatically. The companies and sectors that led the market in recent years weren’t the ones that outperformed in Q1. The market rotation showed the benefit of diversification. It didn’t eliminate market volatility, but it helped manage it by spreading exposure across different areas of the market.

‍AI Is Creating Winners and Losers Within the Tech Sector

‍The technology sector gained nearly +18% in April, but the gap between its strongest and weakest corners was wide. The divergence is being driven by artificial intelligence, which is simultaneously fueling demand in one part of the sector and raising fundamental questions about another. AI requires massive upfront investment to build and operate, including computer chips, data centers, power generation, and networking equipment. The companies that build the infrastructure are seeing a surge in demand as the physical backbone behind AI is constructed. At the same time, AI is advancing to the point where it can perform tasks that traditionally require human users interacting with software. AI agents, automated systems that can handle workflows like customer service, data entry, and internal reporting, are raising questions about the future of enterprise software.

‍The divergence could be seen in markets during April. Semiconductor stocks, which sell computer chips, rose more than +40% over 17 consecutive trading days, the longest uninterrupted winning streak for the group dating back to the early 1990s. Semiconductor funds absorbed $5.5 billion in new investment during the month, and earnings results from major chipmakers confirmed that infrastructure spending is translating into revenue growth. Enterprise software moved in the opposite direction. Several of the largest names in the industry have declined more than -30% this year, and the selling has even hit companies that beat earnings estimates and raised their forward guidance. The divergence comes as the market works through which business models AI will enhance and which it will disrupt. It's a question likely to define not only the technology sector but also the broader market for some time.‍

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Important Disclosures

The information and opinions provided herein are provided as general market commentary only and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.

Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.