<div id="readability-page-1" class="page"><div> <h2>Key Points</h2><ul><li>The benchmark S&amp;P 500 and tech stock-driven Nasdaq Composite launched to record highs last week -- but their monumental run-ups may be put to the test by surging inflation.</li><li>Energy prices are skyrocketing in the wake of the Iran war's historic energy supply disruption.</li><li>A significant projected increase in inflation foreshadows trouble for a stock market that's been this pricey only once in the last 155 years. </li><li>10 stocks we like better than S&amp;P 500 Index ›</li></ul>It's a bird! It's a plane! No, it's not Superman, either! It's the benchmark S&amp;P 500 (SNPINDEX: ^GSPC) and tech stock-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) ascending to fresh record-closing highs, with the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) one modest up day from joining the club.Better-than-expected corporate earnings, coupled with the evolution of artificial intelligence, have created a launch pad scenario for the stock market. But this historic run-up is about to be put to the test, based on the latest inflation update from America's foremost financial institution, the Federal Reserve.Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an &#34;Indispensable Monopoly&#34; providing the critical technology Nvidia and Intel both need. Continue »<img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2ODAyNC9qZXJvbWUtcG93ZWxsLWZlZGVyYWwtcmVzZXJ2ZS1maWVsZC1xdWVzdGlvbnMtcmVwb3J0ZXJzLWZvbWMtbWVldGluZy1mbGlja3IuanBnJnc9NzAw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2ODAyNC9qZXJvbWUtcG93ZWxsLWZlZGVyYWwtcmVzZXJ2ZS1maWVsZC1xdWVzdGlvbnMtcmVwb3J0ZXJzLWZvbWMtbWVldGluZy1mbGlja3IuanBnJnc9NzAw"/>Fed Chair Jerome Powell and the Federal Open Market Committee are navigating an unprecedented energy supply shock. Image source: Official Federal Reserve Photo. <h2>The Iran war is roiling Wall Street</h2>More than two months ago, on Feb. 28, President Donald Trump gave the order for U.S. military forces to begin attacks (along with Israel) against Iran. This led Iran to close the Strait of Hormuz to virtually all commercial shipping vessels, thereby choking off about 20% of the world's crude oil demand. The law of supply and demand is straightforward: when an in-demand good is constrained, its price will rise until demand tapers off. Since the Iran war began, crude oil prices have soared to nearly four-year highs. As of this writing in the evening of April 30, West Texas Intermediate crude oil sits at almost $106 per barrel, up from $67/barrel when the war began.<blockquote> <div>Average U.S. gas prices per gallon on April 30, per AAA:• Regular: $4.30 (⬆️ $1.32 since war in Iran began on Feb. 28) • Premium: $5.16 (⬆️ $1.30 since war began)• Diesel: $5.50 (⬆️ $1.74 since war began)</div> -- NBC News (@NBCNews) April 30, 2026</blockquote>The impact on energy prices has been swift. Gas prices rose at their fastest pace in over 30 years, while diesel prices have climbed by a larger percentage than gasoline. The Iran war is undeniably pinching consumers' pocketbooks.But this is just the first wave of a historic energy supply shock. Eventually, higher transportation and production costs will force businesses to act -- and that's where things can get dicey for the U.S. economy and stock market.<img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2ODAyNC9uZXdzcGFwZXItaW5mbGF0aW9uLXJlcG9ydC13YWdlcy1wcmljZS1zaG9jay1mZWQtbW9uZXRhcnktcG9saWN5LWdldHR5LmpwZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2ODAyNC9uZXdzcGFwZXItaW5mbGF0aW9uLXJlcG9ydC13YWdlcy1wcmljZS1zaG9jay1mZWQtbW9uZXRhcnktcG9saWN5LWdldHR5LmpwZyZ3PTcwMA"/>Image source: Getty Images. <h2>The central bank just updated its inflation forecast</h2>Before the start of the Iran war, trailing 12-month (TTM) U.S. inflation was 2.4% and moving toward the Federal Reserve's long-term inflation target of 2%. In March, factoring in the aforementioned energy supply disruption, U.S. TTM inflation soared 90 basis points to 3.3%.On April 30, the Federal Reserve Bank of Cleveland updated its TTM inflation outlook for April and provided quarterly annualized Consumer Price Index (CPI) guidance. The good news is that the Cleveland Fed's Inflation Nowcasting tool only expects TTM inflation to increase by 26 basis points to 3.56% in April. This is the same projection as one week ago, so things haven't worsened in this respect.However, the quarterly annualized CPI for the second quarter jumped to 6.43% from 4.71% on April 20. In other words, projections suggest that inflation will be a nuisance for consumers and businesses for a longer period than initially anticipated.Surging inflation is arguably the stock market's No. 1 headwind.<blockquote> The S&amp;P 500's CAPE Ratio has moved up to 40, its highest level since 2000 and now above 99% of historical valuations. $SPX pic.twitter.com/uhUt33SCp5 -- Charlie Bilello (@charliebilello) April 20, 2026</blockquote>The stock market began 2026 at its second-priciest valuation since January 1871, according to the Shiller Price-to-Earnings (P/E) Ratio. S&amp;P 500 Shiller P/E readings above 30 have historically foreshadowed eventual declines of 20% (or more) in the Dow, S&amp;P 500, and/or Nasdaq Composite. The Shiller P/E is knocking on the doorstep of 41 to begin May. The sizable uptick in inflation caused by the Iran war has effectively removed any hope of additional interest rate cuts in 2026. Without the prospect of lower lending rates to boost equities, Wall Street's major stock indexes may be vulnerable to a significant pullback.<h2>Should you buy stock in S&amp;P 500 Index right now?</h2> Before you buy stock in S&amp;P 500 Index, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&amp;P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $496,473!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,216,605!* Now, it’s worth noting Stock Advisor’s total average return is 968% — a market-crushing outperformance compared to 202% for the S&amp;P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of May 5, 2026. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. </div></div>

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The Federal Reserve has updated its inflation forecast, indicating a potential rise in inflation due to the ongoing Iran war, which has disrupted energy supplies. The S&P 500 and Nasdaq Composite reached record highs, but surging inflation could challenge this growth. The Cleveland Fed projects a quarterly annualized CPI of 6.43%, suggesting prolonged inflation concerns. With the S&P 500's CAPE Ratio at its highest since 2000, the stock market may face significant pullbacks without the prospect of interest rate cuts.

- The S&P 500 and Nasdaq Composite reached record highs, driven by strong corporate earnings and advancements in artificial intelligence, but face potential challenges from rising inflation caused by the Iran war's impact on energy supply.  
- As crude oil prices hit nearly four-year highs, inflation rose to 3.3% due to increased transportation and production costs.  
- The S&P 500's elevated valuation may lead to significant pullbacks if inflation continues, as the market can no longer anticipate interest rate cuts to support equity prices.

nasdaq

S&P 500

iShares Core S&P 500

SPDR S&P 500

ProShares Inflation Expectations ETF

VG S&P 500

NASDAQ Composite Index

Dow Jones Industrial Average

NVIDIA

Intel

NVIDIA Corporation

Yikes! The Federal Reserve's April and Quarterly Annualized Inflation Forecast Was Just Updated -- and It Isn't Pretty