Economy, Stocks and Bonds
April 2026
The war in the Persian Gulf remains the top catalyst moving markets around the world, because this is driving up both inflation and energy prices. We are amid the largest energy shocks since the 1970’s. Concurrently with this, both the United Nations and NATO appear to be, at a minimum, rapidly and irrevocably losing power and relevance and possibly dissolving entirely. This represents a generation-defining historical moment in that old international alliances are breaking and new ones forming. This has tremendous relevance in every economy on the planet.
The fact that Europe is beginning to form its own independent economic-military bloc, the Iran-China-Russia bloc has already been established, and that the US is justifiably walking back support from the globalist project all argue that this change is likely to be permanent.
Energy and food prices are taken out of the “core” inflation estimates that the Federal Reserve uses to gauge the overall inflation in the economy. This is because food and energy are “noisy,” meaning they are very volatile streams of data and you need to remove a lot of that movement to capture the overall trend, and that overall trend is the Fed’s focus. But these adjustments take no account of the pain the consumer feels when prices at the pump are up 40% since the conflict with Iran began or the fact that consumer prices in general are expected to continue climbing.
At some point, households will not be able to afford to continue to spend, which will lead to lower GDP growth and perhaps a full-blown recession. Oil prices are up approximately 72% in crude oil since the war began. Whether the war is wound down quickly is important, but even if the fighting ended today, some of the facilities taken offline or damaged by missiles will take months to years to repair. During this time, expect energy prices to remain volatile and supply to be thin, the combination of which leads to higher energy prices overall and potential periodic shocks that take them abruptly higher.
The S&P 500 is down 5% from its February peak, despite all the “bad” news, which is as expected. Markets tend to perform well during times of conflict, and the new structure of the world will create as many opportunities as it does hardships. Our expectations are for higher volatility to persist, and the index average returns to be smaller than prior years, although individual companies that execute well can deliver outsized returns while those who don’t will cease to exist.
Rates on Treasuries have risen across the yield curve with the lion’s share of the rise in the 2-30-year maturities, due to inflation expectations resetting higher in the market. Corporate bond rates have increased as well, uniformly across the curve, indicating increased default risk. Still, investors are now able to get anywhere from 4-5% in the maturity range that we are comfortable with, which represents good income.
A Surprise Beneficiary
In the 1950s, Father and Mother created four trusts—one for each of their four young sons. Those trusts included termination when each beneficiary son reached age 30, presumably with the expectation that they would then be financially mature and able to handle the money.
One of the sons, Charles, married and had a child in 1972. In 1975, Charles commenced divorce proceedings, and in 1976 he executed his will. Charles provided nothing to his infant daughter, instead directing that his estate be divided among his brothers’ trusts. In the event that a brother died before Charles, that brother’s share would go to their mother—and if she had also died, the money would be divided among the trusts of the surviving brothers.
These matters stood until 2020, when Charles died. Apparently, he never took another look at his will. After a brother was named executor of the estate and offered the will for probate, the now grown daughter objected, arguing that she was the sole heir of Charles’ estate. The bequest to the trusts for the brothers failed, she argued, because by their terms those trusts had all terminated years earlier, when the brothers reached age 30. The mother had died as well, so she was also not a factor.
The daughter won her case and became Charles’ sole heir. Question: Charles must have known that the trusts would terminate at age 30, because his own trust should have terminated in 1980. Why did he never revisit his estate planning documents? He took that secret to the grave.
How long has it been since you reviewed your will? Have there been any significant changes in your life since then? Do you still own all the assets mentioned in your will? Does a change in your wealth level suggest that new provisions should be considered for your estate plan? Please call upon us with your wealth management questions.
You Can't Do That With an IRA
In general, funds in an IRA are protected from creditor claims in bankruptcy. However, the protection does not apply to an inherited IRA, the U.S. Supreme Court has ruled. Funds in an inherited IRA may be withdrawn at any time without penalty, assets generally must be distributed within ten years, and contributions to inherited IRAs are prohibited. Given these characteristics, an inherited IRA is not “retirement funds” within the meaning of the bankruptcy code.
Stephanie inherited a $44,000 IRA from her father when he died. A few years later she withdrew the entire amount and contributed it to a new IRA in her own name. After that she used the money to purchase an individual retirement annuity.
Before the Bankruptcy Court Stephanie argued that because the IRA had become her own, it should be a protected asset, immune from creditor claims. It was no longer an inherited asset. Unfortunately, the Court pointed out, in the year that Stephanie moved the money the limit on IRA contributions was $6,500 ($5,500 plus a $1,000 “catchup” contribution). Stephanie had made a substantial excess IRA contribution. As such, she was required to pay a penalty tax and file additional IRS forms until the excess contribution was corrected. As Stephanie had done none of these things, the Court held that the IRA was not a tax-exempt account to any degree and was fully vulnerable in bankruptcy.
IRAs and inheritances can be complicated assets to manage for those who lack familiarity with all the requirements. Professional advice is generally a very good idea in these situations.
Trust and Investment Services are not FDIC insured, not deposits of the Bank, not guaranteed by the Bank, not insured by any government agency, and may lose value.