From the desks of Stanley Katz & Lauren Madera
HAPPY EASTER TO THOSE WHO CELEBRATE!
The major U.S. indices snapped a five-week losing streak with a modest rebound for the holiday-shortened week (DJIA: +1.18%, S&P 500: +1.63%, Nasdaq: +2.20%). Markets began the week encouraged by the administration’s estimate of 2-3 more weeks before the U.S. would exit Iran. However, sentiment weakened again after President Trump’s Wednesday night address that avoided a clear timeline for de-escalation. Oil prices subsequently climbed on Thursday, which weighed on equities, though indexes largely recovered by the end of the day. Reports that Iran is drafting a protocol to monitor and possibly toll vessels crossing the Strait of Hormuz helped provide a bit of additional stability. U.S. economic data also offered reasons for cautious encouragement. U.S. manufacturing activity expanded for a third consecutive month in March, with the ISM Manufacturing PMI rising to 52.7, ahead of estimates. Private employers added 62,000 jobs in March according to ADP, above forecasts of 40,000, while consumer confidence edged higher to 91.8. The week’s data, in short, offered a reminder that markets and economies don’t always move in lockstep.
KKR’s Global Macro team has spent recent weeks on the road engaging with policymakers, CEOs, and institutional investors to refine their outlook on global opportunities and concerns. Notable patterns emerged from these conversations, illuminating the questions that many are grappling with. What does AI disrupt, and what does it enable? How will private credit behave as the cycle normalizes? How long and how severe will the Iran conflict be, and what does it mean for supply chains, energy, and investor confidence? What struck KKR is how differently markets have responded to this conflict compared to other recent geopolitical shocks, specifically Russia’s invasion of Ukraine in 2022 and last year’s “Liberation Day” tariff drawdown. Thus far, equities and credit have priced in a fraction of the risk premium those past events ultimately demanded. This “disruption du jour,” so to speak, has prompted KKR to revisit their forecasts across oil, GDP, inflation, interest rates, and the S&P 500. The details are worth reading carefully.
While the market’s attention has been dominated by geopolitical headlines, Capital Group notes that a separate and significant shift has been underway in how investors think about artificial intelligence. The AI narrative, they observe, has taken a sharp turn. Initial exuberance over AI’s transformative potential gave way to fears of an AI bubble. That concern has now been overshadowed by anxiety that AI will displace large segments of the global economy. Investors have fled so-called “AI roadkill” (i.e., business models such as software expected to be rendered obsolete) in favor of companies that produce physical goods. According to Capital Group, energy, materials, and industrials have generated solid gains this year while software and other capital-light industries have suffered sharp declines. Yet the firm cautions against overcorrecting in either direction. We are still in the early stages of understanding AI’s impact on business models, and for some companies the effect may be neutral or even positive. The long-term message echoes what we have heard from several messengers in recent weeks — uncertainty is real, but history rewards those who stay invested and stay disciplined through it.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
KKR:
Capital Group:
J.P. Morgan Asset Management:
Schwab:
Argus:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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