ELLEVEST INSIGHTS

Anyone who flies has had this moment. The plane experiences some turbulence, the cabin rattles, and for a few seconds your brain is convinced something is wrong. Meanwhile, all the things actually keeping the plane in the sky including the engineering, the maintenance schedule, or the pilot's training are quietly doing their job. None of that comes to mind, yet it’s all in place.

March and April in the markets felt a lot like turbulence.

The Strait of Hormuz remains closed with most tankers still idling. A US naval blockade is still in place. Oil prices are still above $100 a barrel. The United Arab Emirates (UAE) is walking out of the Organization of the Petroleum Exporting Countries (OPEC). And the Iran war, now entering its third month, is going beyond anyone's preferred timeline. 

Yet, the S&P 500 is up 10% and Nasdaq up 15% in April. Moving to new all-time highs. 

If those two pictures don't seem to fit together, that’s a natural reaction. A lot of investors might have the same question right now, “how is the market rallying through this?” And those who don’t wonder about it might be leaning on popular answers like “Retail FOMO” or the “TACO trade” as easy answers. But those might be, I believe, the wrong ones. In my opinion, there are two main reasons the headlines aren't giving the whole picture.

Oil & Inflation Risk (This Is Not the 1970s)

Every oil shock conjures the same ghost. Inflation leads to lower growth, and then stagflation, and ultimately a recession. But the structural backdrop has changed. US dependence on Middle East oil is not what it used to be. The US has been a net crude oil exporter since 2020 largely due to growth in American shale production. The average US household also spends 40% less on energy relative to their disposable income vs the early 1980s. The same moves in oil prices don't hit consumer wallets the way they used to.

The market is also naturally adjusting on its own. JP Morgan estimates that global oil consumption in April ran about 4.3 million barrels per day below February's level showing early demand destruction from higher prices. High prices, in other words, are starting to impact demand, which in turn helps mitigate high prices.

There’s also an interesting silver lining to the pain at the pump. Higher gas prices have sparked a renewed enthusiasm for electric vehicles. Specifically, the used EV market is seeing a massive surge in demand as drivers look for creative, sustainable ways to bypass the gas station altogether.

With that said, we aren’t dismissing inflation risk entirely. If the post-pandemic era taught us anything, it’s that inflation can be delayed and stubbornly sticky. But the 1970s stagflation analogy doesn't carry the same weight as it once did.

Earnings: The Untold Story

While equity markets sold off in March, analysts were actually raising 2026 S&P 500 earnings estimates. So while valuations were falling, behind the scenes companies’ earnings forecasts were actually getting stronger. That's the kind of setup that history has rewarded.

History has shown that when valuations fall while earnings growth holds positive, markets almost always advance over the next year (roughly 95% of the time). And even if earnings disappoint following those expectations, markets still advance about 85% of the time. Asymmetry like that is rare in markets.

Q1 earnings unfolding right now is also reinforcing the story. With about a quarter of the S&P reported: 84% of companies are beating estimates (vs a 5-year average of 78%), and we're heading into the sixth consecutive quarter of double-digit earnings growth. And critically, this isn't just a Magnificent 7 (Mag 7) story anymore. Excluding Nvidia, the Mag 7 are expected to deliver lower earnings growth relative to the other 493 stocks within the S&P 500. 

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Back to the plane. I've come to realize the most useful skill in this seat isn't predicting the turbulence, but more so separating what I feel from what's actually moving the portfolios. April was a good test. The turbulence in March was real. Yet the plane was just fine doing its job.

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