As long as earnings grow, stock prices can climb despite inflation
In the closing days of April 2026, American equity markets reached record heights carried aloft by the enduring faith in artificial intelligence as an economic force, even as oil prices surged and inflation quietly sharpened its edge. Technology giants, Apple foremost among them, offered earnings guidance strong enough to reassure investors that the future still belonged to the companies building it. Yet beneath the celebration, central banks on two continents were wrestling with the oldest tension in modern finance: how to hold growth and price stability in the same hand without dropping one.
- S&P 500 and Nasdaq futures edged higher Friday morning, extending a rally that made April the best month for US stocks since 2020, powered almost entirely by megacap technology and AI-linked names.
- Japan's government intervened dramatically in currency markets after the yen slid to 157.14 per dollar, buying yen in a coordinated move following a public 'final warning' — a rare and forceful signal of how fragile Asian currency stability has become.
- Beneath the headline gains, the market was quietly fracturing: Meta Platforms shed over 8%, Willis Towers Watson fell nearly 12%, and International Paper dropped more than 9%, revealing a rally that rewards the few and punishes the rest.
- The Fed's path forward grew murkier as March's PCE inflation index posted its largest monthly jump since 2022, while a newly divided Federal Reserve committee faces pressure to choose between cooling prices and protecting growth.
- The European Central Bank signaled likely rate hikes in June unless Middle East tensions ease and energy prices stabilize — a reminder that geopolitical fire has a way of burning through financial optimism.
Wall Street ended Thursday at record highs and carried that energy into Friday, with S&P 500 and Nasdaq futures both nudging upward. The catalyst was familiar: megacap technology companies had reported strong earnings, and Apple's after-hours gains on robust revenue guidance reaffirmed that the artificial intelligence trade still commanded conviction among investors.
Across the Pacific, Japan's government had moved decisively to defend the yen after it slid to 157.14 per dollar. Officials had issued a public warning against yen selling, then followed through with coordinated intervention — buying yen, selling dollars — in a move that left little ambiguity despite the Finance Ministry's silence. The Nikkei, citing government sources, confirmed what traders already suspected.
April had defied expectations. Despite escalating Middle East tensions and rising oil prices, the S&P 500 posted its strongest monthly performance since 2020. The gains were narrow but powerful, concentrated in technology and AI infrastructure plays. Quanta Services surged nearly 16%, Qualcomm climbed over 15%, and Teradyne rose more than 12%. But the rally had its casualties too — Meta Platforms fell sharply, and Willis Towers Watson and International Paper both suffered double-digit losses.
The optimism rested on a fragile thesis: that earnings growth could outrun inflation and geopolitical risk. The first quarter had seen GDP accelerate, driven by AI investment, but March's personal consumption expenditures index rose 0.7% — its steepest monthly climb since 2022 — a warning sign the Fed could not easily ignore. With a new chair navigating a divided committee, the central bank's next move remained deeply uncertain. The European Central Bank, meanwhile, was preparing for rate hikes unless energy prices relented. The question investors could not yet answer was whether the AI narrative had enough momentum to carry markets through what was coming.
Wall Street closed Thursday at record highs, and the momentum carried into Friday morning. Futures contracts for the S&P 500 ticked up 0.2%, while Nasdaq 100 futures gained 0.1%, suggesting the rally had room to run. The driver was straightforward: megacap technology companies had delivered strong earnings, and investors were rewarding them. Apple, in particular, moved higher in after-hours trading on the strength of its revenue guidance, a signal that the artificial intelligence trade that has dominated markets for months still had believers.
Across the Pacific, the yen was weakening slightly, trading around 157.14 per dollar after climbing as high as 155.57 the previous day. That earlier strength came from Japanese government intervention in the currency markets. Officials in Tokyo had issued what they called a "final" warning to investors against selling the yen, and hours later, the government acted—buying yen and selling dollars in a coordinated move to prop up the currency. The Finance Ministry declined to comment, but the Nikkei newspaper, citing government sources, confirmed the action. Traders and strategists said the abruptness of the move left little doubt about what had happened.
April had been a remarkable month for American equities despite headwinds that would normally have weighed heavily on markets. Oil prices surged as Middle East tensions escalated with no resolution in sight, yet the S&P 500 posted its best month since 2020. The gains were concentrated in technology and artificial intelligence plays, a narrow but powerful rally. Among the biggest movers on the day were Quanta Services, up 15.78%, Qualcomm up 15.12%, and Teradyne up 12.12%. But the market also showed cracks: Meta Platforms fell 8.55%, Willis Towers Watson dropped 11.69%, and International Paper declined 9.41%.
Underlying the optimism was a simple thesis: as long as the economy kept growing and companies could expand earnings, stock prices could climb even in the face of higher energy costs and inflation. The first quarter had seen gross domestic product accelerate, buoyed by massive investment in artificial intelligence infrastructure. But that same quarter revealed a darker side. Inflation pressures had sharpened in March as the geopolitical crisis pushed gasoline prices higher. The personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, rose 0.7% in March alone—the largest monthly jump since 2022.
The European Central Bank was watching these inflation signals closely. Policymakers there were likely to raise interest rates at their June meeting unless energy prices stabilized and the Iran conflict ended, according to people familiar with the situation. In Washington, the Federal Reserve faced its own calculus. The central bank appeared to be entering what some observers described as its most fractious period in years, with a new chair navigating a divided committee. How the Fed responded to the collision between growth and inflation would shape markets in the weeks ahead. Investors were bracing for a more dovish stance, but the path forward remained uncertain. The question hanging over markets was whether the artificial intelligence narrative could sustain itself against rising price pressures and geopolitical risk, or whether the rally would eventually stumble.
Notable Quotes
As long as the economy continues to grow and companies are able to grow earnings, we can see higher stock prices even in the face of higher energy prices and inflation.— Chris Zaccarelli, Northlight Asset Management
Investors will be watching how the Federal Reserve navigates this backdrop, with a likely more dovish chair entering what appears to be its most divided committee in decades.— Bret Kenwell, eToro
The Hearth Conversation Another angle on the story
Why did tech earnings matter so much on this particular day? The market had already been climbing.
Because earnings are the bedrock. Futures don't move on hope alone—they move when companies actually deliver numbers. Apple's revenue guidance was strong enough to push shares higher after the close, and that signal rippled through the entire sector.
And the yen intervention—was that a sign of panic in Tokyo?
Not panic, but concern. The government had warned investors to stop selling the yen, and when that warning didn't stick, they acted directly. The abruptness suggested they were serious about defending the currency.
April was supposed to be difficult. Oil prices were surging. Why did stocks have their best month since 2020?
Because investors decided that artificial intelligence growth could outrun the headwinds. It was a narrow bet—tech and AI stocks carried the entire market—but it was a powerful one.
The inflation numbers seem troubling, though. 0.7% in a single month?
It is troubling. That's the biggest monthly jump since 2022, and it came from energy prices spiking because of the Middle East crisis. The Fed now has to thread a needle: keep rates steady to support growth, or raise them to fight inflation.
So what happens next?
Everything depends on whether companies can keep growing earnings while inflation stays elevated. If they can't, the artificial intelligence trade loses its justification, and the market corrects. If they can, we keep climbing.