Navigating uncertainty

Investors currently face a complex landscape, shaped by a convergence of geopolitical, technological, and macro factors. The most pressing issue is the potential for a pro­longed disruption to global energy supplies. But questions also remain about the sustainability of AI capital spending and the risk of software industry disruption. And the recent rise in interest rate expectations is heightening existing con­cerns about fiscal policy and private credit vulnerabilities.

Global equities had a strong start to the first quarter, before strikes on Iran led to higher energy prices, higher volatility, and market weakness. At the time of writing, global stocks are down 0.9% year to date. Energy stocks have outper­formed (+27.5% year to date), while consumer discretion­ary (-8.4%), financials (-6.2%), and health care (-4.9%) have underperformed. Bond yields have traded in a range through much of the quarter, with yields volatile in recent weeks on expectations of higher inflation and potentially higher rates. Credit spreads have widened modestly, re­flecting increased supply and some investor caution about private credit.

We see three pivotal questions for investors to consider in the coming quarter:

First, how will the Iran conflict shape the macro environ­ment? Second, is the AI capex cycle peaking and what to make of AI disruption risk? Third, are bond market stress and private credit vulnerabilities a cause for concern? Each of these questions has the potential to drive significant market moves—necessitating a disciplined approach to risk management and portfolio construction.