Weekly Investment Perspective

U.S. equity markets extended their recent drawdown last week as geopolitical risk and inflation concerns continued to weigh on sentiment. The S&P 500 fell roughly 2%, the Dow declined just under 1%, and the Nasdaq Composite dropped more than 3%, officially pushing the technology heavy index into correction territory. Volatility moved sharply higher, with both equity and rate volatility measures reaching levels not seen since last year. The main story remains the war in Iran and its spillover into markets through higher oil prices, renewed inflation concerns, and rising Treasury yields — an uncomfortable combination for risk assets.

Developments in the Middle East drove much of the week’s narrative. Early hopes for de escalation followed comments from President Trump suggesting productive discussions with Iran and a temporary pause on strikes against Iranian energy infrastructure. Those hopes faded as Iranian officials denied talks were underway and reports surfaced of additional U.S. troop deployments to the region. While the administration later extended its pause on infrastructure strikes into early April, markets remained skeptical. Oil prices were volatile throughout the week, with WTI crude recently breaking above the psychologically important level of $100 per barrel. Elevated energy prices have reignited inflation concerns at a time when investors had only recently begun pricing in the possibility of rate cuts later this year.

Growth-oriented areas of the market, particularly technology, also remained under pressure. Some of that reflected the broader move higher in interest rates, which tends to weigh more heavily on longer-duration assets, while new AI announcements drove dispersion beneath the surface. Updates from Google and Anthropic reignited concerns around compression in memory, software, and security demand, contributing to notable weakness across semiconductors and software names. Meta also faced company specific pressure from adverse legal rulings. These developments highlight an important theme: while artificial intelligence remains a powerful secular growth driver, the pace of change introduces real winners and losers along the way, increasing dispersion beneath the headline indices.

There were also some pockets of stress in private credit. Reports that investors sought to withdraw more than 11% of assets from Apollo’s Debt Solutions BDC, only to be limited by withdrawal caps, renewed scrutiny around liquidity mismatches in parts of the private credit ecosystem. Separately, FS KKR Capital Corp.’s debt rating was downgraded to junk by Moody’s. While these stresses remain contained for now, they reinforce our preference for transparency, liquidity, and balance sheet strength within credit allocations, particularly late in the cycle.

Interest rates represented another headwind last week. Treasury yields moved higher across the curve, with the 2 year briefly rising above 4% and the 30 year touching 5% before pulling back modestly. Demand at several Treasury auctions also disappointed, meaning the government had to offer somewhat higher yields than expected to attract buyers for new debt. In plain English, investors are becoming more sensitive to inflation risks and to the growing amount of Treasury supply that needs to be absorbed. Markets also adjusted expectations for Fed policy, briefly pricing potential rate hikes later this year amid inflation concerns tied to energy prices and supply disruptions.

Economic data last week offered a mixed picture. March flash PMIs pointed to slowing business activity, rising input costs, and higher selling prices, reviving stagflation concerns. That said, consumer spending has so far shown resilience despite the recent surge in gasoline prices. How long that resilience persists will be critical, as higher energy costs function like a tax on household demand and can ultimately cool broader economic activity.

Looking ahead, the coming week features a heavy economic calendar that will help shape near term expectations. The March employment report will be the key release, with payroll growth expected to rebound modestly after February’s contraction and the unemployment rate seen holding steady. Investors will also be watching consumer confidence, retail sales, job openings, and ISM manufacturing and services data for additional insight into labor market momentum and consumer health. Geopolitical headlines and the path of oil prices are likely to remain the dominant swing factors, but this week’s data should help clarify whether investors need to be more concerned about inflation, slowing growth, or some combination of both.

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