Market Commentary
“A genius is the man who can do the average thing when everyone else around him is losing his mind.”
When I wrote to you last month, on April 9, it was the day after the U.S. and Iran had agreed to a two-week cease-fire to open the Strait of Hormuz.
Over a month later, the cease-fire is still (sort of) holding, and the Strait is "open." However, during that time, only 179 commercial vessels transited the Strait in either direction. That is only slightly more than what would cross the Strait in a single day, pre-war.
Gone, apparently, are the days of demanding an "unconditional surrender" and President Trump hand-picking the new leader of Iran. I've lost count of the deadlines that have come and gone, and it seems like Trump has given up on deadlines and is now just waiting for Iran to "call," when they are ready.
On Sunday, the world's largest oil company, Saudi Aramco, warned that it will take several months for the oil market to normalize, even if the Strait reopened immediately, and that if "trade and shipping remain curtailed by more than a few weeks from today, we anticipate the supply disruption to persist, and the market to normalize only in 2027."
Meanwhile, Ras Laffan, the world's largest natural gas export facility, which was heavily damaged by Iranian missile strikes in March, wiping out 17% of its capacity, says that it will take 3-5 years to make repairs and bring the facility back to full capacity.
Oil prices remain above $100 per barrel for both WTI and Brent Crude. WTI Crude and Brent Crude are the two primary global benchmarks for light, sweet crude oil pricing, but they differ in origin, quality, and market dynamics. Brent typically trades at a premium to WTI largely due to broader global demand.
President Trump has been touting that tankers from all around the world are now coming to the USA to refill, as if this is somehow a good thing. More demand for our domestic oil will send prices at the gas pump higher and keep them there longer. Don't be surprised if WTI starts trading at a premium to Brent if that continues.
I would say that I don't think Trump cares too much about prices going up, but I don't have to guess. Just yesterday, an article with the following exchange crossed my desk:
Reporter: "To what extent are Americans' financial situations motivating you to make a deal? [with Iran]"
Trump: "Not even a little bit…. I don't think about Americans' financial situation."
Speaking of prices, inflation numbers for April came out yesterday, and to the surprise of no one, they were up. Here are a few charts.
Headline Inflation rose 3.8% from one year ago. That is the biggest increase since May 2023. Obviously, higher energy prices played a major role in the past two reports.
Core CPI, which excludes food and energy, rose 2.8% from one year ago. So even without energy costs, prices are rising at an accelerating rate.
Zooming in on monthly inflation for both Headline and Core CPI, we see that Headline inflation over the past couple of months is approaching the highest levels seen during the post-COVID surge, and Core CPI for the month was the highest since January 2025. I am not sure how valuable it really is, but some financial journalists and economists like to annualize the monthly number to see what inflation would be if it continued at the monthly pace for a full year. Doing that math gets us annualized inflation rates of 7.2% and 4.5% for Headline and Core, respectively. Yikes!
Higher food prices are likely coming too. As I mentioned last month, it isn't just energy products that depend on the Strait of Hormuz being open. The raw materials for most fertilizers used by American farmers are also being held hostage, and according to the Farm Bureau, "An overwhelming majority of America's farmers who responded to a nationwide survey say they cannot afford to purchase enough fertilizer to get them through the year."
Thanks to these higher inflation numbers, Real Average Weekly Earnings slipped into negative territory for the first time since May 2023. Any time you see "real," it means that an inflation measure is reducing some number. In this case, we are looking at weekly earnings from one year ago, compared with this year's earnings, minus the annual inflation rate. What it tells us is that while wages have risen over the past year, they haven't kept pace with price increases.
Perhaps that is why the percentages of credit card and auto loan balances that are more than 90 days delinquent are around where they peaked after the Great Financial Crisis.
All of this has led interest rate futures traders to price in expectations that the Fed will hike rates rather than cut them. The chart below has a lot of data and can be hard to decipher, but focus on the part I highlighted in the red rectangle.
The red rectangle shows that traders assign an 81.5% chance that the Fed will hike interest rates by 0.25% by April 28, 2027. They are also pricing in a small chance (4.1%) of a rate cut at the next Fed meeting in June 2026, which will be the first meeting under the new Fed Chairman, Kevin Warsh, whom Trump presumably nominated as a "low interest rate person."
Another indication that the Fed is on track to raise rates comes from the yield on the 2-year U.S. Treasury, which generally front runs Fed actions.
Note that the blue line moves up/down before the red line.
In case it doesn't go without saying, or you are too young (or too old!) to remember the last rate-hike cycle that coincided with a bear market in 2022, I will remind you that higher interest rates are bad for the stock market.
The first estimate of GDP for the first quarter of 2026 came in at 2%, missing estimates of 2.3%, but up from 0.5% in the fourth quarter of 2025, suggesting economic growth is accelerating.
However, that estimate will be revised two more times (on 5/28 and 6/25) before being finalized. If you remember, the initial estimate for the fourth quarter of 2025 was 1.4%, then revised lower to 0.7%, and finally to only 0.5%.
Given that economic and geopolitical backdrop, the following section on index performance should absolutely shock you.
Index Performance
In April, the so-called Magnificent Seven (Mag 7), the ten largest stocks in the S&P 500 (Top 10), and small caps all trounced the S&P 500 Index Equal Weight (EW), driving the benchmark (market cap weighted) S&P 500 to a 10.4% monthly return.
Bonds were flat after including interest paid, and gold was down 1.1%. Notably, China's central bank used the pullback over the past couple of months to add more gold to its reserves.
In 2026, gold is still beating the S&P 500 and the S&P 500 EW. And the EW is still ahead of the benchmark index, but only ever so slightly. The Mag 7 and Top 10 are flat for the year, but catching up nicely. Small caps are leading the way this year, up 12.8%.
The market rally since the March 30 lows has been nothing short of amazing, and totally illogical given the economic and geopolitical backdrop outlined in this commentary. Stocks went from oversold to overbought in one of the shortest periods on record - 12 trading days. This rally has happened with some of the worst breadth readings in history, and almost completely without the best businesses in the world contributing.
Market breadth is a measure of how many stocks are doing well compared to those that are not. In a healthy rally, most stocks do well. This rally has reached all-time highs, with only 2.4% of S&P 500 companies trading at 52-week highs. Out of 792 days where the market reached a new 52-week high going back to the 1900's, this is the worst breadth on record.
Quality stocks are largely sitting out the rally. As a long-term investor, should you care? I would argue that you should not, and direct you to the opening quote of this commentary.
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This, too, shall pass. Just because Mr. Market, who we all know is manic depressive, is buying low-quality garbage doesn't mean that you have to, or that it will work in the long run. Sure, if you are a trader or a speculator and you're focused on short-term returns vs an arbitrary benchmark, then momentum is the only way to go. But if you are a long-term investor focused on compounding wealth in the long run, then quality is where to look for bargains.
High-quality businesses don't usually trade at fair prices. Often, when buying a high-quality business at a fair price, you are getting that opportunity because of a large but solvable problem in the business, or because of market manias that shift the focus from time-tested strategy to chasing short-term gains, as in the current environment. During these periods, the stocks of high-quality businesses can trade sideways, or even down a bit, for a while, which is at least partly why we generally require a stock to be in an uptrend before being added as a new position in our portfolio. But what about when you've been invested in one of these businesses for years, it has gone up a lot, generating adequate, or even spectacular, annualized returns? Should you sell that business and shift your focus to low-quality momentum just because your high-quality position is entering a period when it will go sideways, or even drop slightly, for a while? I would argue that you should not. Unless, perhaps, your long-term financial goals have changed.
Here are a couple of hypothetical examples of high-quality stocks bought at fair prices that underperformed the market for extended periods, before ultimately moving higher to generate adequate returns over the entire holding period.
Imagine you bought shares of Deere (DE) in September 2023. You would have been down over the next 11 months while the S&P 500 was up considerably. If you had sold just because you underperformed the market for 11 months, you'd have missed out on owning a world-class business at a fair price that has generated a handsome annualized return since your entry.
Or, have a look at Monster Beverage (MNST).
I could provide example after example of this exact phenomenon. I am not just cherry-picking a couple of random tickers. And these aren't even the best examples, just very average ones. Underperformance compared to the market is not a good reason to sell, or not own a high-quality business for the long haul.
These sideways periods can be frustrating, especially if you are constantly measuring your success as an investor vs short-term gains in arbitrary benchmarks. If that is you, perhaps our passive strategies would be a better fit. We have also recently developed an actively managed Equity ETF basket that can be substituted for the quality stocks basket in our flagship Elevate models.
But make no mistake, we know how these situations resolve. Eventually, the momentum craze runs out of buyers to chase the rally higher. And once that happens, the low-quality names that went up the most tend to fall the fastest, and the market wakes up looking for businesses with bulletproof balance sheets that gush free cash flow - the stocks we own. The only thing we don't know is when.
I will leave you with my offer from last month, to bring the fam and join me on a cruise through the Strait of Hormuz, since it is "open" and all... Apparently, I wasn't the only one with the idea! According to Not the Bee, my favorite news outlet:
4 cruise ships slipped through the mine-infested Iranian controlled Strait of Hormuz at full speed. Because nothing says fun-filled pleasure cruise like dodging Iranian gunfire.
Of course, while the cruise ships slipping through the Strait is wild, it's not the craziest part of the story:
Yes, that's a real Far Side comic from 1987.
History repeats itself.
In the '80s, a cruise ship going through Hormuz was a pretty funny comic idea.
In 2026, it's just another day.
That's it for this month.
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Until next time, I thank God for each of you, and I thank each of you for reading this commentary.
Clients, I encourage you to click here to access your personalized performance portal and see how your portfolio performed compared to the market's last month.
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors
Legal Information and Disclosures
This commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. Elevate Capital Advisors, LLC ("Elevate") has no duty or obligation to update the information contained herein. This information is being made available for educational purposes only. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Elevate believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Elevate. Further, wherever there exists the potential for profit there is also the risk of loss.
