The Federal Reserve's April Inflation Forecast Was Just Updated -- and the Outlook for the Stock Market Worsened, Yet Again

Key Points:

• Last week, the S&P 500 and Nasdaq Composite reached new record highs, driven by optimism about a quick resolution to the Iran war and strong earnings growth from artificial intelligence, while the Dow Jones Industrial Average remained close to its all-time high.
• The Iran conflict has caused a major disruption in energy supply, as Iran closed the Strait of Hormuz, halting about 20 million barrels of daily oil shipments and causing crude oil prices to surge, which has led to higher gasoline and diesel prices for consumers.
• Rising energy costs are increasing transportation and production expenses for businesses, which could negatively impact the stock market despite recent gains.
• The U.S. inflation rate rose to 3.3% year-over-year in March, driven largely by energy price shocks, and the Federal Reserve Bank of Cleveland's Inflation Nowcasting tool projects inflation could continue to climb, reaching 3.58% for April.
• Elevated inflation forecasts pose a risk to the stock market, which started the year with historically high valuations supported by expectations of future interest rate cuts and enthusiasm around AI-driven growth.