By John Towfighi, CNN
New York (CNN) — Markets just had a month of seemingly contradictory results. The S&P 500 just had its best month in nearly six years, even though oil prices have surged back above $100 per barrel and bond yields have climbed.
Stocks are forward looking and trying to see past the war with Iran. But energy prices have spiked and borrowing costs have risen while the Strait of Hormuz, a key waterway for crude, remains effectively closed. Here’s what to know:
Stocks
The S&P 500 soared more than 10% in April and hit seven record highs after tumbling in March. It was the index’s best month since November 2020.
This return to record highs means 401(k)s, individual retirement accounts and stock portfolios that track benchmark US stock indexes recovered after an uneasy few weeks.
The rebound was driven in part by robust corporate earnings and optimism about the US-Iran ceasefire. The stock market is looking past the war because of resilience in US corporate profits.
Investor enthusiasm for the AI boom also helped the rally. The tech-heavy Nasdaq soared 15% in April and had its best month in six years.
Other factors are at play, too. Algorithmic trading systems can kick in automatically at different levels, contributing to the swift rebound. Wall Street traders have also been eager to buy the dip in hopes of not missing a rally.
“Corporate fundamental strength has overshadowed and offset uncertainty stemming from the Middle East conflict, the potential for higher inflation and questions around policy direction,” said Bill Merz, head of capital markets research at US Bank Asset Management.
“That corporate earnings story has been so strong—that’s the headline in my mind of why the market is trading the way that it is,” Merz added.
Risks remain: The longer the war with Iran drags on, the more concerns could arise about inflation or a hit to growth.
Bonds
The bond market is still wrestling with higher energy prices. That’s leading to elevated borrowing costs because yields in the bond market help set interest rates across the economy.
Yields rise when bond prices fall. US Treasuries moved lower in late April, pushing up yields. The 10-year Treasury yield hit 4.4% this week, its highest since March.
Treasury yields influence rates across the economy, from mortgage rates to auto loans. The 30-year fixed mortgage, which tracks the 10-year Treasury yield, climbed to 6.3% during the week ending Thursday.
Yields rose as oil prices surged, fueling inflation concerns. Inflation can eat it into investors’ returns on bonds, prompting them to demand higher yields.
Yields have also climbed as investors adjust expectations for higher-for-longer interest rates. The Federal Reserve on Wednesday held interest rates steady, and traders now expect the Fed to remain on hold until 2027.
Oil
Oil prices have climbed as the Strait of Hormuz remains effectively closed. The US naval blockade is further halting the flow of oil out of the Gulf.
Oil prices are up more than 50% since the war with Iran began, raising energy costs for businesses and consumers. The national US average gas price on Thursday hit $4.30 a gallon, its highest level since 2022.
Brent crude tumbled on April 7 after President Donald Trump announced a ceasefire with Iran. But oil prices surged again at month-end as a lasting agreement failed to take place and the US navy moved to block the Strait of Hormuz to hamper Iran’s oil exports.
Brent hit an Iran war-high of $126 per barrel Thursday before settling around $114 per barrel. Energy prices are expected to remain elevated as long as the Strait of Hormuz remains closed.