Investor sentiment shows growing fragility
- Investors entered the April 28 Federal Reserve meeting with stocks near highs but sentiment brittle as Middle East conflict, oil volatility and earnings risked reversals. - San Francisco Fed said March consumer inflation jumped to 3.3% from 2.4% in February after the conflict, while oil volatility clouded growth. - S&P Global and the International Monetary Fund both lifted concern about inflation and growth as energy disruptions persisted. (spglobal.com)
Investors came into the Federal Reserve’s April 28-29 meeting with equities resilient, but the backdrop was still being driven by war, oil and earnings. (frbsf.org) (imf.org) The San Francisco Fed said on April 16 that oil markets had become “high and volatile” and were significantly clouding the economic outlook. It said March consumer inflation rose to 3.3% from 2.4% in February, the first reading after the Middle East conflict began. (frbsf.org) That jump mattered for rate expectations because the Fed’s preferred inflation gauge was still 2.8% headline and 3.0% core in February, both above the central bank’s 2% goal. The San Francisco Fed said longer-term inflation expectations remained anchored, but near- and medium-term expectations had risen. (frbsf.org) S&P Global said on April 17 that it had raised its inflation forecasts because its new assumptions now included extended energy disruptions and higher oil and gas prices. It also said supply-chain strains, shipping costs and insurance costs were adding to broader price pressure. (spglobal.com) The same S&P Global update said expected U.S. Federal Reserve rate cuts had been pushed back to 2027. That left investors balancing two risks at once: slower growth if the shock lasts, and tighter policy for longer if inflation broadens. (spglobal.com) The International Monetary Fund made the wider backdrop explicit in its April 2026 World Economic Outlook. It said the global economy was again disrupted by war in the Middle East and projected global growth of 3.1% in 2026, with inflation ticking up before resuming its decline in 2027. (imf.org) The fund also said downside risks dominated, including a longer or broader conflict, worsening geopolitical fragmentation and tighter financial conditions. That is the setup behind fragile sentiment: markets can rally on de-escalation headlines, then reprice quickly if oil, inflation or earnings surprise in the other direction. (imf.org) (frbsf.org) What happens next is less about a single data point than about whether energy disruptions fade fast enough for inflation to cool again. Until that is clearer, the market’s rebound sits on a narrower footing than headline index levels suggest. (spglobal.com) (imf.org)
