This week delivered one of the more interesting contradictions in recent market history. On Thursday morning, the BEA reported that the PCE price index — the Fed’s preferred inflation gauge — rose 3.8% year-over-year in April, the highest reading in nearly two years. That same day, Brent crude sat at $93, down almost 20% from its $126 peak just four weeks earlier. And the S&P 500 made its ninth consecutive week of gains.
The market is looking through the inflation data and betting that the ceasefire with Iran will hold, oil will normalize, and the price pressures will fade. The data, meanwhile, is still reflecting the damage from $126 Brent. Both can’t be right forever. Let’s look at each piece.
More Inflation Data – PCE
Thursday’s Personal Income and Outlays report for April confirmed what the CPI and PPI had been signaling: inflation is still accelerating. The PCE price index rose 0.4% month-over-month and 3.8% year-over-year, up from 3.5% in March. Core PCE — excluding food and energy — rose 0.2% for the month and 3.3% year-over-year, up from 3.2%.
Gasoline and energy goods remained the largest driver of spending growth at $28.8 billion while housing and utilities added $22.7 billion. Recreation services contributed $12.1 billion.
What’s notable is where consumers are pulling back. Motor vehicles and parts declined $9.2 billion — the largest single-category decline in the report. Financial services and insurance fell $3.9 billion. Clothing and footwear dropped $3.0 billion. Consumers are still paying for gas and groceries, but they’re cutting discretionary spending to do it.
The income side is equally telling. Personal income was essentially flat in April — down less than 0.1% while disposable personal income fell 0.1%, and real disposable income dropped 0.5%. The personal saving rate collapsed to 2.6%, the lowest in over a year and well below the pre-pandemic norm of 6–7%. Consumers aren’t cutting back on spending in aggregate, but they’re funding it by draining savings rather than earning more.
The critical question is what happens next. This report captures April, when oil was still near its highs. With Brent now at $93 and a ceasefire deal taking shape, the energy component should ease in the May and June data.
Oil Prices Are Falling
WTI Oil settled near $87 this week as the decline has been driven almost entirely by growing optimism around a U.S.-Iran ceasefire extension.
In the adjacent chart, we probably need to see a move below $80 to see relief in the energy markets.
For the inflation outlook, this is the most important variable. If the ceasefire holds and Hormuz reopens, the energy component of PCE, CPI, and PPI should roll over in the May and June data. That would take headline inflation from an accelerating problem to a decelerating one within a quarter. If the deal falls apart — as the April ceasefire did — we’re right back to $100+ crude and another round of price shocks. The market is positioned for the first scenario. History with this conflict suggests caution about the second.
S&P 500: Nine Weeks and Counting
The S&P 500 closed Friday at 7,580 and posted its ninth consecutive weekly gain — the longest winning streak since December 2023. The Nasdaq closed at 26,973. The Dow crossed 51,000 for the first time. All three indices are at or near all-time highs.
The rally has been broad-based by mega-cap standards but still driven by a familiar set of catalysts: AI spending and earnings beats. Dell Technologies surged roughly 40% this week alone after reporting $60 billion in AI server sales for Q1. Micron crossed the $1 trillion market cap threshold. The AI infrastructure buildout continues to be the dominant driver of equity performance and you can see below in the SOXX semiconductor index that investors are piling money into these highly profitable companies.
The broader earnings picture supports the move. Q1 2026 blended earnings growth for the S&P 500 came in at 27.7% year-over-year — the highest since Q4 2021 — with 84% of companies beating estimates. Net profit margins hit their highest level in over 15 years. Analysts are projecting 21% earnings growth for the full year. As long as companies keep delivering these numbers, the market has fundamental support for these levels.
Putting It Together
The market and the data are telling two different stories right now. The data says inflation is at 3.8% and accelerating, consumers are draining savings, and real incomes are falling. The market says oil is crashing, the ceasefire will hold, earnings are stellar, and the worst is behind us. If the ceasefire holds and Hormuz reopens, the market will likely be proven right — energy-driven inflation will fade, the Fed will have room to maneuver, and the S&P’s run has further to go.
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President, Kisco Capital
This commentary is provided by Kisco Capital LLC for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Opinions are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal. Kisco Capital and its clients may hold positions in securities discussed herein.
