Economic data released last week continued to highlight the same tension investors have been grappling with for months: moderating growth, inflation that remains “stuck” near 3 percent, and interest rates that remain the key swing factor for markets. That backdrop was complicated further by the ongoing conflict in the Middle East, which has the potential to both elevate inflation pressures and weigh on growth through higher uncertainty.
Last week the ceasefire deadline passed and was extended, while U.S./Iran negotiations were postponed, leaving the Strait of Hormuz largely closed to transit. Oil prices responded by rising throughout the week, with West Texas Intermediate climbing from $83.85 last Friday to close the week at $94.40, while Brent moved from $90.38 to $105.33. Despite the move in crude, the S&P 500 closed the week at a new all-time high, while interest rates edged only modestly higher.
With a lighter economic calendar, attention shifted to geopolitics and to Tuesday’s Senate testimony from Federal Reserve Chair nominee Kevin Warsh. Not surprisingly, many of the questions centered on the Fed’s independence. Warsh stated, “Presidents tend to be for cutting rates. … Fed independence is up to the Fed,” and later added, “Fed leadership has to make a decision about what’s the right thing to do.”
While he reiterated his support for Fed independence, he also signaled a desire for a meaningful shift in how the Fed communicates and, potentially, how it uses its policy tools. In his view, a “quieter” Fed should reduce its reliance on forward guidance and return to a narrower focus on monetary policy—arguing the Fed “must stay in its lane.” He also expressed his belief that its independence is put most at risk when the Fed ventures into fiscal or social policy debates where it has neither authority nor expertise.
Warsh appeared most eager to drive change in the Fed’s balance sheet—particularly the repeated use of quantitative easing (QE) in the post-Global Financial Crisis and post-COVID era (2009–present). In a notable exchange, he framed this as a shift in regime and toolkit, emphasizing that the balance sheet channel benefits financial-asset owners disproportionately relative to interest-rate policy:
“I think that means a regime change in the conduct of policy. … The Fed has an interest-rate tool and a balance sheet tool. My view is the interest-rate tool gets in the cracks—it’s fairer. The balance sheet tool disproportionately helps those with financial assets. … Half of our fellow Americans don’t own any financial assets, so they’re wondering what’s in it for them.”
We believe these comments matter for markets. Our view has long been that the Fed’s extensive use of QE over the past 18 years has supported higher equity valuations and, importantly, has tended to make drawdowns shorter and shallower than many investors were conditioned to expect in prior cycles.
Read more: Strait of Hormuz Standoff Reignites Volatility
In the nearer term, the market’s focus is on what a Warsh-led Fed could mean and how soon it could arrive. That question became more immediate after the Department of Justice announced it was ending its investigation into cost overruns tied to the Fed’s building renovation, an issue that Republican Senator Thom Tillis had cited as a prerequisite for confirming Warsh. Meanwhile, President Trump was asked in a CNBC interview last week whether he would be disappointed if his new Fed chair did not cut rates right away; he answered, “I would.”
Warsh expressed optimism about the supply side of the U.S. economy—highlighting potential productivity gains from AI—and he suggested inflation is moving in a better direction. Even so, we continue to believe it could be difficult for policymakers to cut rates in the coming months (absent a meaningful growth scare), given that inflation remains stuck near 3 percent since December 2023 coupled with the reality that the Fed has not hit its 2 percent target since February 2021. This is complicated by the current conflict in the Middle East given the potential impacts from energy prices and supply dynamics.
The S&P U.S. Global Purchasing Managers' Indexes (PMIs) underscored the dilemma: Input-cost inflation accelerated, and supply delays worsened at a pace not seen since mid-2022—contributing to the largest monthly jump in average selling prices for goods and services since July 2022. Chris Williamson, chief business economist at S&P Global Market Intelligence, commented in the release, “[T]he overall inflation picture is now the most worrying for almost four years” while also stating, “Balancing the risks of inflation lifting sharply higher against the underlying weakness of economic growth presents policymakers at the Fed with a growing dilemma. However, it will likely be increasingly hard to make a case for rate cuts if inflation follows the path signaled by the PMI while the economy continues to eke out only modest growth.”
Early in the week, a strong retail sales report helped reinforce the narrative of a resilient consumer. However, retail sales are not adjusted for price changes. The Chicago Fed’s Advanced Retail Trade Summary Nowcast ahead of the report suggested that price increases accounted for much of the headline strength—consistent with the idea that “real” spending growth is softer than the nominal figures imply. Reflecting this real spending deceleration, overall consumer spending (according to the Atlanta Fed GDPNow) is expected to rise 1.4 percent in Q1, which would be the slowest pace since Q1 2025 (and before that, December 2022). Overall economic growth, according to the Atlanta Fed, is currently estimated for Q1 at 1.2 percent, down sharply from earlier-quarter estimates and up only marginally from Q4 2025’s disappointing 0.5 percent.
We continue to expect heightened uncertainty in the months ahead given the range of crosscurrents, and we remind investors that the antidote to uncertainty is diversification—not concentration in any single asset class, theme, or narrow segment of the equity market. In our prior week’s commentary we noted two companies that, reminiscent of the late-1990s dot-com era, pivoted their names and narratives toward AI—sending previously languishing stocks sharply higher.
Last week offered another reminder of the risks of concentration and headline-driven thematics: Intel, a company in which the U.S. government now has a stake, reported strong earnings, which propelled the stock higher and allowed it to finally eclipse its dot-com peak of $74.875 set on August 31, 2000. It’s also worth remembering that the broader U.S. tech sector peaked on March 27, 2000—and did not reach a new price high until July 19, 2017.
In periods like this—when the markets, inflation, and the geopolitical landscape are in flux—portfolio resilience becomes less about predicting the next data point and more about ensuring exposure is not overly dependent on any one outcome. Diversification across asset classes, geographies, and market capitalizations remains one of the few tools that can help investors navigate uncertainty in any economic cycle.
Wall Street wrap
Retail sales remain stagnant apart from surging gas prices: The U.S. Census Bureau’s advance retail sales report for March 2026, released last week, showed a headline gain of 1.7 percent in March, reaching $752.1 billion. Additionally, February's data was revised slightly higher to a 0.7 percent gain. However, a large portion of this growth was driven by external price shocks rather than increased consumer demand, as a record 15.5 percent spike in gasoline station fuel prices soared toward $4 a gallon amid the escalating Middle East conflict.
Private sector rebounds modestly in April: The April 2026 S&P Global Flash PMI reports paint a picture of a global economy struggling with “stagflationary” pressures—characterized by high inflation and stalling growth—largely driven by the ongoing conflict in the Middle East. Overall the U.S. Composite PMI rose to 52.0 in April, a three-month high, but the growth was unevenly distributed. “The April PMI is broadly consistent with the economy struggling to manage annualized growth in excess of 1 percent, with the vast service sector acting as the principal drag,” S&P’s Williamson noted.
The Manufacturing PMI jumped to 54.0, its strongest in nearly four years. However, the report noted that the increase in part reflected safety stock building as firms scrambled to secure supplies amidst Middle East war disruptions. Production and new orders jumped to 48-month and 47-month highs, respectively, but were driven by clients building stock to get ahead of price hikes and war-related supply shortages. Meanwhile, supplier delivery times lengthened at the fastest rate since August 2022 due to Middle East war-related shipping constraints. Manufacturing employment contracted for the first time since July 2025 as factory managers increasingly focused on automation and “headcount management” to offset soaring input costs caused by the Middle East war.
While the Services PMI improved slightly to 51.3, business activity remains far below 2025 levels. Rising prices and falling exports led to the slowest new business growth in two years. The headline index rose to 51.3 (up from 49.8 in March), indicating a slight return to expansion. However, this is the second-weakest rate of expansion in the past 14 months. Both household and business customers showed hesitancy toward discretionary spending on things like travel, tourism, and financial products due to the ongoing Middle East conflict and high costs, while new export orders continued to decline, hindered by geopolitical tensions.
Middle East conflict weighs on consumer confidence as UMICH survey hits record low: The final reading of the University of Michigan Consumer Sentiment Index fell to 49.8 in April, down from March’s 53.3 and the weakest reading on record since data collection began in 1978. Fueling this decline was the U.S.-Iran conflict, particularly disruptions to the Strait of Hormuz, which caused a surge in oil and gas prices.
The Current Economic Conditions index fell to 52.5 in April from 55.8 in March, with consumers reporting that their personal financial situations have been at their weakest since May of last year after gasoline prices exceeded $4 per gallon. Year-ahead inflation expectations jumped to 4.7 percent, the largest one-month increase since April 2025, when tariffs were announced. Five-year inflation expectations also rose to 3.5 percent, the highest since October 2025. Consumer expectations, meanwhile, fell to 48.1 from 51.7 in March.
The week ahead
Tuesday: The Conference Board will publish its U.S. Consumer Confidence Survey for April 2026 at 10:00 a.m. ET. Given the University of Michigan consumer sentiment survey checking in at an all-time low, reflecting mounting inflation pressures, we will be watching this measure of consumer confidence to see if it deteriorates, as well as the much-watched labor differential, which is the percentage of consumers who say jobs are “plentiful” versus “hard to get.”
Tuesday/Wednesday: The Fed is set to meet on April 28–29. Markets are currently factoring in a 100 percent chance of no change to interest rates as the U.S. central bank maintains a wait-and-see posture to gauge the full impact of oil-driven inflation shocks before making any further changes.
Thursday: The U.S. Bureau of Economic Analysis will release the Personal Income and Outlays report for March 2026 on Thursday, April 30, at 8:30 a.m. ET. February's report, released on April 9 due to the impact of the late 2025 government shutdown, showed a notable decline in personal income and signs of sticky inflation. We will be monitoring to see if this trend continues.
Separately, the Fed will release its preferred inflation indicator, the Personal Consumption Expenditures (PCE) price index. Expectations currently point to overall month-over-month (MOM) PCE inflation coming in at 0.7 percent, largely driven by a recent spike in energy prices. This is expected to have a lesser impact on Core PCE, which is projected at a more modest 0.3 percent MOM. However, the year-over-year rate is anticipated to rise to 3.2 percent, up from 3.0 percent last month. It is worth noting that this 3.2 percent figure would be the highest seen since January 2024, keeping inflation well above the Fed’s 2 percent target.
Finally, Thursday will bring the first release of the Q1 Gross Domestic Product report. After seeing economic growth slow to just 0.5 percent in the fourth quarter, current market expectations are pointing to a solid rebound of 2.1 percent for Q1. However, it is important to keep in mind that the Atlanta Fed’s GDPNow tracker is estimating a much more conservative 1.2 percent growth rate.
Friday: the April ISM Manufacturing PMI for April is scheduled for 10:00 a.m. ET. The previous month’s reading was 52.7 percent, indicating expansion. We will be monitoring to see whether this trend continues.
Brent Schutte, CFA, is chief investment officer of the Northwestern Mutual Wealth Management Company.
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