The effects of inflation pressures on the Fed, plus the private credit and AI investing landscape.
As the Iran conflict enters its fourth week, investors are being forced to reassess not only the likely duration of hostilities, but also the potential paths this conflict may take from here. Stocks have stumbled again amid back-and-forth headlines and reports surrounding the war in Iran and the Middle East. In fact, the Nasdaq Composite ended in correction territory on Thursday for the first time in a year, dropping more than 10% from its record high notched on Oct. 29, 2025.
While the White House originally estimated a four- to six-week timeline, we should at this point realistically brace for more. The stakes are now squarely centered around freedom of navigation in the Strait of Hormuz, with Iran demanding transit fees and having the ability to hold shipping hostage at a moment’s notice. While a sustained de-escalation appears unlikely, this administration has a demonstrated willingness to pivot quickly, so really anything is possible.
However, there’s no doubt we should brace for the economic drag of reverberating energy shocks. The average gasoline price in the U.S. is now $3.98, or $1.00 higher than only a month ago, while seasonal demand is projected to accelerate with the onset of spring. The Middle East is not only a key exporter of energy, but also of fertilizers, aluminum, petrochemicals and other energy‑intensive inputs across downstream supply chains.
Even if the conflict is resolved quickly, some of these price pressures are now locked in. With that, expectations for the Federal Reserve to cut interest rates have plummeted, with only one cut priced into futures over the next 12 months. Whispers are growing louder that, the longer military operations in Iran continue, so rises the possibility that the Fed could be pushed into interest rate hikes. Of course, this is assuming overall U.S. economic growth and labor market conditions remain stable and do not materially deteriorate.
Then there are the other canaries in the coal mine—private credit concerns and AI disruption.
On the former, some retail investors are leaving the market, pulling back amid the reports of potential risks. Private credit grew rapidly as managers increasingly marketed new vehicles to affluent individual investors, broadening their traditional institutional investor base. But we have not seen a true credit cycle since the recovery from the Global Financial Crisis, and there are a lot of new players in private credit that haven’t been tested through difficult market environments. Just one of the worries percolating in private credit markets is the possibility that money managers have loaned too much money to software and technology companies vulnerable to disruption from AI.
On that point, fears over the potential impact of AI on incumbent business models—colloquially known as the “SaaS apocalypse” (SaaS stands for “software as a service”)—have weighed considerably on the software sector so far this year. We think it is incorrect to generalize that the entire industry is facing an existential crisis; instead, incumbents will need to adapt their businesses and improve their products using AI to stave off competition and pressure from emerging “AI-native” startups. In our view, some participants in the software ecosystem are more likely to come out as winners than others, but reports of a SaaS apocalypse are greatly exaggerated.
Despite the market jitters around AI capital expenditures and on AI disruption, private credit, and the Iran conflict, the vast majority of companies remain surprisingly bullish about future earnings growth.
While the more cynical among us might add an ominous “for now” to that sentiment, let’s pause for a moment and consider the potential opportunities a range-bound, volatile equity market can create.
We are seeing terrific companies trade at valuations we can stomach now. We are also seeing companies initially left in the dust of AI euphoria getting their rightful day in the sun. And we are finally witnessing investors again place a premium on quality and not just trade to gain exposure, regardless of fundamentals or demonstrated profitability. The thematic, momentum-driven market dynamics of yesteryear have seemingly come to an end.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” So said Benjamin Graham, the father of value investing, and his legendary acolyte Warren Buffett has often repeated this idea. In our discussions with you, we have emphasized the importance of fundamentals, of quality and of diversification in your investment plan. These are the building blocks of enduring portfolio growth and the long-term success of your financial plan: knowing that market conditions can change abruptly and having a portfolio built for resilience rather than trying to time those shifts is our focus on your behalf. We seek to make sure your financial plan is integrated with that investment plan, and that they rhyme and work together, a point so often overlooked in our industry.
Written by a human.