Careful: These Three Potential Market Traps Are Hidden in Plain Sight
Private credit, jobs and the Strait of Hormuz could all cause more damage than we can now price in.
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Investing Charts
Seasoned investors can be forgiven for feeling some déjà vu right now. Oil is spiking, the U.S. is involved in another war in the Middle East, financials are faltering and a new cockroach seems to emerge in the private credit space every few days. If you are having some flashbacks to 2007 and is viewing the equity markets with increasing trepidation, you are not alone.
There are several questions that need to have positive resolution before the market can move higher in my view. The first, obviously, is the Strait of Hormuz needs to be reopened. The effective closure of this key transit point has triggered a huge surge in energy and other commodity prices, like that for fertilizer. This will lead to a significant rise in inflation across the economy. We can hope it's just on a short-term basis.
Related: The Market's Thin Red Line
And inflation already was on the rebound as this week’s much-worse-than expected February producer price index reading confirmed. Unfortunately, as this regional war approaches three weeks, there are few signs of capitulation from the Iranian regime. Events seem to be escalating as the largest gas field in the world was hit by allied forces, which triggered retaliation by Iran on energy and other assets in the gulf regions. This caused energy prices to spurt further forward, before falling late in the day on Thursday.
Then, we have the deterioration in the private credit markets that have been on full display here in March. Several major funds have gated redemptions, loan default rates are rising, the sector is heavily exposed to the software sector, and there is more commentary around the potential of a subprime type of credit situation developing. I am concerned this could lead to some sort of credit crunch. JPMorgan Chase & Co. (JPM) is now pulling back lending to the private credit space. I expect other banks to do the same. There are also early signs of potential contagion. Names like Block (XYZ) and Affirm Holdings (AFRM) fell in trading on Wednesday after Stone Ridge Asset Management significantly gated redemptions in its private credit funds. Stone Ridge buys small business and consumer loans from Block, Affirm and other similar companies.
Finally, we have the apparent increasing impacts on the jobs markets. Job growth was quite anemic in 2025 and there were significant job losses in February. Block kicked off the string of negative news on this front last month, announcing it was slashing 40% of its entire workforce due to AI. Oracle (ORCL) and Meta Platforms (META) look to be making significant staff reductions to free up capital for their massive AI infrastructure buildouts. Yesterday, new broke that HSBC Holdings plc (HSBC) is mulling over cutting up to 20,000 jobs globally – 10% of its workforce – as it plans to use AI to greatly reduce its middle and back offices.
Equities have sold off across the board during recent trading sessions. Albeit the decline has been orderly to this point. Until investors see significant progress on at least two of these fronts, the downward trend in markets could continue if not accelerate in the weeks ahead. Therefore, I remain quite cautious with my portfolio allocation, and I am only incrementally buying the dip this week utilizing the considerable cash and short-term treasury hoard within that portfolio. Lower entry points could well be up ahead if recent developments remain unresolved.
At the time of publication, Jensen had no position in any security mentioned.
