You Win, You Forget; You Lose, You Forget

Kobe Bryant once said, “The best athletes have the shortest memory. You win, you forget; you lose, you forget.” So far in 2026, the best investors have likely had the shortest memory. The S&P 500 (S&P) rallied more than 10% in April, marking the largest monthly gain for the index since November 2020. April’s 10% gain was just the 14^th monthly gain of 10% or more since WWII; months like April are not common. Even less common was the technology sector’s performance last month. Since the S&P 500 information technology sector index was launched in the early 1990s, there have only been a handful of months where we have seen a stronger monthly print than April’s 17.5% rally. The next most recent occurrence was in 2002 during the lows of the dot-com bubble.

April’s strength was surprising considering the volatile economic and geopolitical environment investors have faced so far in 2026. March capped a five-week losing streak that saw the S&P down 9.1%, which was painful, but orderly by historic standards of pullbacks. But it pays to have a short memory, and the five-week losing streak was followed by a five-week winning streak. Since WWII there have been more than 30 five-week losing streaks, and more than 120(!) five-week winning streaks. However, as Bespoke Investment Group notes, there have only been five other periods when a five-week losing streak was immediately followed by a five-week winning streak. The last time this happened was back in 1982. While this is a small sample set, the returns in the months and quarters following these oddities have been better than average.

In recent weeks we’ve covered the conflict between the United States and Iran in varying levels of detail. Most readers probably know that the conflict still hasn’t come to an official end and that the Strait of Hormuz is functionally closed to shipping traffic. The recent rally has pushed the situation in the Middle East into the background, but the closure of the strait will be one of the most important factors for investors in the coming months. The price of crude oil remains above $100 per barrel, up from less than $60 at the beginning of the year.

While the United States’ economy is more insulated from energy price shocks than the rest of the world, recent measures of domestic inflation are beginning to reflect the impact of higher energy prices. The Fed’s preferred measure of inflation, the core Personal Consumption Expenditures Price Index (PCE), indicated that prices were up 3.2% from a year ago in April and have once again drifted away from the Federal Reserve’s (Fed) 2.0% target. What is notable is that the core version of PCE strips out the impact of both food and energy prices. It is easy to assume that the impact of energy prices would be mostly isolated, but the actual story is more complicated. Energy prices affect nearly every sector of the economy—transportation, manufacturing, agriculture and even services. Companies that see higher energy costs will most likely pass at least some of those costs onto consumers in the form of higher prices for goods and services.

Markets are beginning to reflect the possibility that oil prices could remain elevated well after the conflict in the Middle East concludes. President Trump has worked to reassure markets that we are nearing the end of the conflict, but crude oil futures tell a different story. December 2026 futures reflect expectations for crude oil to remain elevated above $80 per barrel. While $80 per barrel is markedly lower than the $100 per barrel spot price, it is still high enough to have an impact on both inflation and consumer spending.

Last Wednesday’s Federal Open Market Committee (FOMC) meeting was a sign that Fed policymakers have begun to make the impact of higher energy prices part of their calculations. In Jerome Powell’s final press conference as Chairman of the Fed (he is expected to be replaced by Kevin Warsh) he noted that the FOMC has shifted from leaning toward an interest rate cut as the next policy move. Because the developments in the Middle East are “contributing to a high level of uncertainty about the economic outlook,” the Fed is likely to keep rates unchanged in the near term. The shift in tone had some economists wondering if the Fed’s next move could be an interest rate hike. Powell was direct during his comments, stating that committee member preferences are balanced between a rate hike and a rate cut. When Kevin Warsh presumably takes the reins at the Fed next month, many expect him to push for lower rates. However, the latest FOMC statement is a reminder that Warsh is just one vote and that any push for immediate easing could be met with resistance from other members who prefer to remain patient for a clearer outcome in the Middle East.

So, what has kept investor memory short over the last five weeks? In simple terms, a stable economy and strong corporate earnings. During the first-quarter, gross domestic product (GDP) grew at a 2.0% annualized pace, below the consensus expectation of 2.3%. Details of the latest GDP report show that recent growth has been driven by strong investment activity from businesses. Consumer spending also contributed to growth, but much less than it has in recent quarters. Unfortunately, the report also echoed other recent inflation data, showing that prices are up more than the Fed’s 2.0% target over the last year. While 2.0% economic growth isn’t inspiring, it is good enough to reassure investors as they remain patient for a rebound in coming quarters.

Through the end of April, 63% of S&P companies reported first-quarter earnings, and the results have been far better than expected. More than 80% of companies have beaten revenue and earnings expectations, and the 27% earnings growth rate is on track to be the highest since the fourth quarter of 2021 when the economy recovered from the pandemic-induced lockdown. Most of the index-level earnings growth can be attributed to members of the “Magnificent 7” that now have a blended earnings growth rate of 61%. While the Magnificent 7 have done much of the heavy lifting, the other 493 members of the S&P have seen their blended growth rate rise to 16.4%, which is a very good result on its own. One of the key insights from this earnings season is tied to the details of the first-quarter GDP report. Many of the companies tied to artificial intelligence (AI) have responded to strong earnings growth by boosting capital investment. The largest companies tied to AI have now committed to more than $700 billion in capital investment in 2026 alone. While the first-quarter GDP report doesn’t name names, it is reasonable to assume that AI-related investment is doing much of the heavy lifting when it comes to economic growth this year.

While it has paid to have a short memory in 2026, it is important for investors to have some recollection of the past. The current environment is rife with uncertainty, and surging energy prices have a history of wreaking havoc on the economy. In the coming months, try not to succumb to complete amnesia in the pursuit of emulating Kobe.

Looking forward to this week, investors will continue to monitor the situation in the Middle East while keeping an eye on the next wave of earnings reports. In economic data, a variety of housing, employment and consumer activity measures will be released.

Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market.