Wall Street Decided the Crisis Is Over Before the World Does

Investors are acting as though the worst phase of the Middle East crisis may already be behind us. U.S. futures were modestly higher Thursday morning, lifted by signs that diplomacy may still have room to work and by another round of corporate earnings that suggest the American economy is not falling apart after all.

No final peace agreement has been reached and no one serious would say the region is stable, but investors have latched onto signs of de-escalation: discussions of a possible ceasefire in Lebanon, the prospect of more talks involving Iran, and growing hope that a broader diplomatic arrangement might still emerge.

That helps explain why stocks are behaving as though the danger has already begun to fade into the rearview mirror. Investors are not ignoring the risks, but are betting that the conflict has passed its most explosive phase and that, however messy the negotiations become, the next chapter is more likely to be diplomatic than catastrophic. This bet may turn out to be right, but it is still a bet.

The speed and confidence of the recovery is striking. The losses incurred during the war have all been erased and the S&P 500 and Nasdaq just closed at record high. The rebound is being driven heavily by the same forces that have powered much of the market's strength before: artificial intelligence, giant technology companies, and the belief that U.S. corporate earnings can keep surprising to the upside.

Europe, by contrast, is having a harder time sharing the joy. Its earlier lead over the U.S. market this year has shrunk sharply. Europe lacks the same depth in mega-cap tech and AI, the two engines currently doing much of the heavy lifting for American equities. Add weakness in luxury stocks and a generally more hesitant tone, and the transatlantic contrast becomes plain. 

Still, the bullish case rests on more than diplomacy and tech optimism. Earnings season is doing important work here. Major banks have mostly beaten expectations this week and, more importantly, have said something investors badly wanted to hear: the U.S. consumer, the engine of America's growth, still looks healthy. Meanwhile, trading desks have benefited from volatility and mergers and acquisitions appear to be picking up.

In corporate news, PepsiCo beat profit estimates. TSMC and Charles Schwab posted stronger first-quarter numbers. Netflix reports after the close, and investors will treat that release not simply as a company result but as another test of whether the market's confidence is justified.

In Washington, the increasingly messy transition at the Federal Reserve continues. Kevin Warsh's path to replacing Jerome Powell appears less smooth than expected, and Donald Trump is again publicly escalating his pressure on Powell. A Senate Banking Committee hearing is set for April 21, but the nomination of Kevin Warsh is still fragile because a single Republican senator, Thom Tillis, can block it in committee. Tillis has frozen Fed nominations amid a Justice Department investigation into Powell over the Fed’s headquarters renovation and alleged misleading testimony, and that standoff has only deepened as federal prosecutors continue to pursue the case and Donald Trump keeps publicly pressuring Powell to leave. Powell’s term as Fed chair ends on May 15, but he has said he will stay until a successor is confirmed and may remain on the Fed’s board until the investigation is resolved, raising the possibility of a prolonged institutional deadlock that could last well into the midterms. Even beyond that, there is another unresolved question: whether Powell, whose governor term runs until January 2028, might choose to remain at the Fed longer than tradition would suggest.

Today's economic highlights:

Today's agenda includes: in China, the House Price Index, Fixed Asset Investment, Retail Sales, Industrial Production, GDP Growth Rate YoY and QoQ, and FDI; in Australia, Employment Change, Unemployment Rate, Full Time Employment Change, and RBA Hunter Speech; in the United Kingdom, Goods Trade Balance Non-EU, GDP MoM, GDP 3-Month Avg, Goods Trade Balance, Industrial Production MoM, and Manufacturing Production MoM; in the Euro Area, ECB Monetary Policy Meeting Accounts; in the United States, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, Fed Williams Speech, and Industrial Production MoM. See the full calendar here.

• Dollar index: 98.015
• Gold: $4,820
• Crude Oil (BRENT): $95.56 (WTI) $91.30
• United States 10 years: 4.27%
• BITCOIN: $74,685

In corporate news:

• China is considering restricting exports of advanced solar manufacturing equipment to the U.S., a move that could disrupt expansion plans at companies such as Tesla.
• El Al Israel Airlines expanded its deal with Boeing by exercising an option to buy six more 787-9 Dreamliners and adding an option for up to six additional 787s.
• Pernod Ricard said its talks with Brown-Forman are still ongoing, while a competing bid from Sazerac has complicated the situation.
• Adobe launched a new Firefly AI assistant for its creative software suite and said the tool will also connect with Anthropic’s Claude.
• Elon Musk’s team has reportedly contacted suppliers including Applied Materials, Tokyo Electron, Lam Research and Samsung Electronics to accelerate the Terafab AI chip project.
• Doug Field, a former executive at Tesla and Apple, is leaving Ford as part of a reorganisation, the WSJ reports.
• Johnson Controls is considering selling off businesses valued at up to $4.5 billion, according to Bloomberg.
• Alphabet could realise $100 billion in capital gains from its investment in SpaceX, again according to Bloomberg.
• Snap is laying off 1,000 people, citing advances in AI.
• Live Nation Entertainment has illegally monopolised the ticketing market, according to a federal jury in New York.
• PPG is acquiring road marking manufacturer Ozark Materials.
• L3Harris has announced a $1 billion expansion to boost its production of solid-propellant rocket motors in Virginia.
• Today's key earnings reports: Netflix, PepsiCo, Abbott, Charles Schwab, Prologis, Tesco

Analyst Recommendations:

• Equitable Holdings, Inc.: Raymond James upgrades to buy from market perform with a target price of USD 58.
• Flutter Entertainment Plc: Citi downgrades to sell from buy and reduces the target price from GBP 158 to GBP 68.
• Hamilton Lane Incorporated: JP Morgan upgrades to overweight from neutral with a target price of USD 166.
• Okta, Inc.: Raymond James upgrades to outperform from market perform with a target price of USD 85.
• Paypal Holdings, Inc.: Mizuho Securities downgrades to neutral from outperform and reduces the target price from USD 60 to USD 50.
• Sps Commerce, Inc.: Rothschild & Co Redburn downgrades to neutral from buy and reduces the target price from USD 80 to USD 60.
• Stellantis N.v.: Kepler Cheuvreux downgrades to hold from buy and reduces the target price from EUR 9 to EUR 7.50.
• Atlassian Corporation: Morgan Stanley maintains its overweight recommendation and reduces the target price from USD 290 to USD 120.
• Hubspot, Inc.: Canaccord Genuity maintains its buy recommendation and reduces the target price from USD 485 to USD 350.
• Intel Corporation: Bernstein maintains its market perform recommendation and raises the target price from USD 36 to USD 60.
• Marvell Technology Group Ltd: President Capital Management Corp maintains its buy recommendation and raises the target price from USD 124 to USD 162.
• Servicenow, Inc.: TD Cowen maintains its buy recommendation and reduces the target price from USD 185 to USD 140.
• Vertiv Holdings Co: Roth Capital Partners maintains its buy recommendation and raises the target price from USD 275 to USD 335.