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Iran Ceasefire Headlines Ease Volatility—What Comes Next?
A look at the market’s first quarter
Over the last few weeks, a combination of geopolitical escalation, rising energy prices and renewed questions around the durability of economic growth culminated in the S&P 500’s weakest quarterly performance since 2022.
During this period, a consistent pattern emerged. As oil prices rose, equities moved lower, reflecting concerns that a sustained energy shock could reintroduce inflation pressure, tighten financial conditions and reduce the scope for policy support. That relationship shaped both investor sentiment and positioning as markets moved through quarter-end.
What drove performance last week
Last week offered some reprieve as equities broke their losing streak and delivered the strongest trading day of the year, suggesting markets may be starting to look through the initial shock and place greater weight on the duration and severity of the disruption. Global equities moved higher, gaining +3.0%; however, returns remain modestly negative year-to-date at -1.7%. Importantly, even with the recent pullback, global equities are still up nearly +25.0% year-over-year, meaning investors who stayed the course participated in one of the strongest one-year periods in recent history.
Gains were not confined to a single segment of the market:
Large-cap equities: Rebounded, with growth outperforming value (+4.2% vs. +2.6%)
Small-cap equities: Advanced, with both styles gaining more than +3.0%
International equities: Rose +3.0%, continuing to provide relative stability year-to-date
Emerging markets: Posted more modest gains of +0.3%
Fixed income: Contributed as well, with municipal and taxable bonds each rising approximately +0.7%
The market’s strongest days are the easiest to miss
Last week’s rebound serves as a timely reminder that recoveries often begin while uncertainty remains elevated and that the market’s strongest days tend to occur during periods of stress, not after conditions have clearly improved.
Since 2000, missing just 10 of the S&P 500’s best days would have reduced cumulative returns by more than half. These moves rarely coincide with improving headlines, instead arriving while positioning is still defensive and sentiment fragile.
We saw this dynamic as recently as last April, when the S&P 500 delivered roughly 9.5% in a single trading day amid peak volatility. With uncertainty around energy markets and geopolitics still unresolved, that pattern remains relevant today for investors looking to capture long-term returns.
Volatility has eased but what follows may surprise you
While last week’s recovery was notable, energy markets remain a key anchor for investor sentiment. The path forward will depend on developments in the Middle East, particularly around the Strait of Hormuz, a critical transit point for global energy supply discussed previously in our March Quick Takes. Recent tensions have centered on the stability of flows through the Strait, alongside targeted strikes on regional energy infrastructure.
Ceasefire headlines contributed to a sharp decline in oil prices on Wednesday, reflecting a partial easing of immediate supply concerns. Underlying disruptions, however, remain in place, with key transit routes still constrained and a full recovery expected to take time. Volatility has since eased alongside these developments, with the VIX (CBOE Volatility Index) retracing sharply from recent highs. That said, markets remain highly sensitive to incoming headlines, and until there is greater clarity on a lasting resolution, periods of renewed volatility remain possible.
Such uncertainty can feel uncomfortable in real time, but it is also consistent with how market recoveries often begin. As shown in Figure 2, in early April last year the VIX spiked into the mid-40s, yet the S&P 500 went on to return approximately 32% over the following 12 months. While no two periods are identical, the broader pattern is a useful reminder that the moments of greatest discomfort often coincide with improving long-term opportunity.
Join our Investing Outlook Webinar
The near-term outlook will hinge on how incoming data aligns with recent market signals. Last week’s employment report surprised to the upside, reinforcing labor market resilience, while Thursday’s Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) releases showed consumer spending remained subdued, core inflation remained firm, and headline inflation is beginning to reflect the early pass-through of higher energy prices. With oil prices elevated and shipping conditions through the Strait of Hormuz still evolving, the persistence of inflation will be a key factor in how markets interpret the path for growth and policy.
We’ll walk through how we’re evaluating these developments during our upcoming Investing Outlook webinar on April 30, including how they’re shaping portfolio positioning for the balance of the year. We invite you to join our Investment Team, who will share their perspective.
