The situation in the Middle East remains incredibly fluid. Over the past few weeks, we have seen a cycle of escalations, announced ceasefires, and naval blockades in the Strait of Hormuz.

From a fundamental economic perspective, the market’s primary gauge for this conflict is the price of oil. When tensions ease, oil drops, and equities rally. When tensions escalate, energy prices spike, putting pressure on stocks.

Currently, the markets are looking past the immediate risks, treating this as a contained event. This resilience recently pushed the S&P 500 over the 7,100 mark. While we do not expect this to be a perfectly smooth ride, it reinforces a core investing truth: unless there is an unforeseen global escalation, markets tend to turn the page quickly and return their focus to corporate fundamentals.

A Changing of the Guard at the Fed

On the domestic front, the transition of power at the Federal Reserve is officially underway as Kevin Warsh prepares to succeed Jerome Powell.

For long-term investors, the political theater surrounding the confirmation hearings is merely noise. The fundamental issue is Central Bank independence. The market will be watching closely to see if the new leadership can maintain a unified Fed focused strictly on its core economic mandates—controlling inflation and maximizing employment—free from partisan influence.

Corporate Fundamentals & Economic Data

While geopolitical headlines are loud, corporate earnings are providing a very strong, stabilizing backdrop:

• Earnings Growth: Corporate profits are coming in remarkably strong. We are currently tracking toward a 15% growth rate for the quarter—which would mark the sixth consecutive quarter of double-digit profit growth.
• The Valuation Picture: Stock valuations are currently high by historical standards. However, because these companies are generating such robust profit growth, those higher prices are fundamentally supported by actual business performance.
• The Week Ahead: We are looking toward the Fed’s two-day meeting (where interest rates are overwhelmingly expected to remain unchanged), alongside the first reading of Q1 Gross Domestic Product (GDP) and key inflation data.

Navigating the Noise

The past two months have undoubtedly been stressful, and we will likely face more volatility as these global narratives unfold. However, the recent market highs are a stark reminder of why it is so critical to stick to your financial plan. Markets win more often than they lose. By tuning out the negativity and relying on the power of compounding, you position yourself to capture the long-term growth of the global economy.