Welcome to the monthly market update from Midland Wealth Management. I’m Jake Stapleton, Team Lead of Research. Today, I’ll walk through the Investment Team’s latest views on the economy and financial markets.

War in Iran

Starting with global headlines, tensions with Iran remain elevated despite a fragile ceasefire. US and its allies continue to pressure Tehran over its nuclear program, while Iran has responded to both diplomatic channels and disruptions in the Strait of Hormuz.

The lack of progress continues to drive volatility in the energy markets. Oil prices have fluctuated on shifting expectations but remain above $100.

Even if tensions ease and the Strait fully reopens, we expect energy prices to remain elevated. Infrastructure damage across the region remains significant, with more than 80 facilities impacted, and recovery times likely measured in years, not months.

Interest Rates and FOMC

That uncertainty is feeding directly into global monetary policy. The Bank of England has paused its rate-cutting cycle, even signaling to the possibility of future hikes. In the Eurozone, energy prices have surged roughly 10% over the last month alone.

Here in the US, the Fed held rates steady at 3.50 to 3.75% at its most recent meeting. However, the decision revealed meaningful division within the committee, passing in an 8 to 4 vote. Some cited concerns about inflation risks, while others are increasingly focused on slowing growth.

The path forward for policy remains uncertain. The recent appointment of Kevin Warsh as Fed Chairman has led some to speculate about the potential shift toward rate cuts, though concerns around political influence have surfaced. One point of continuity, however, is Jerome Powell. In a highly unusual move, he will remain on the Board of Governors, which could slow or limit how quickly policy direction shifts under the new leadership.

GDP Update

Turning to the US economy, rising energy prices and tighter financial conditions are beginning to show up in the data. Consumer spending, which accounts for 70% of economic activity, slowed in the first quarter, increasing just 1.6%, down from the 1.9% previously.

Despite that moderation, GDP grew at an annualized rate of 2.0%, an improvement from last quarter’s half percent growth.

While consumer spending is slowing, business investment is accelerating. Fixed investment, particularly in AI and data center infrastructure, has been a key driver of growth as companies continue to deploy capital despite a higher-rate environment.

Corporate Earnings

That strength is now showing up clearly in corporate earnings. First quarter earnings have started on a strong note, with year-over-year growth approaching 30%, well above expectations in the low teens. Much of that upside has been driven by technology, particularly semiconductor companies like Micron and Intel, which continue to see robust demand tied to data center and AI-related investments.

At the same time, we’re seeing a notable shift in market leadership. Over the last month, investors have begun to rotate out of energy, one of the strongest performing sectors earlier this year, and back into technology.

That rotation has helped push the S&P 500 to new all-time highs, with the index gaining more than 10% in April.

Outlook

Looking ahead, we expect bouts of volatility to continue as markets adjust to an evolving geopolitical backdrop. In our view, some of these risks, particularly around energy supply and broader Middle Eastern tensions, may still be underpriced.

At the same time, we’re seeing increasing signs of a K-shaped economy. Lower-income households are feeling the strain of higher costs, particularly in energy, where spending can account for 20% of income, relative to higher-income consumers. That dynamic has the potential to shift discretionary spending patterns and weigh on parts of the retail landscape.

Another key focus remains on the labor market as continued uncertainty has created a no-hire, no-fire scenario further tightening the gap between new job openings and the number of unemployed persons shrinks.