Iran Is Only the Latest Market Landmine
We start March with a war, credit concerns, job worries and Nvidia down 8% since posting earnings.
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"There are decades where nothing happens; and there are weeks when decades happen. “ – Lenin
The pace of events is picking up notably as we start trading here in March. The Nasdaq fell 3% in February, as fears of AI disruption continue to push software stocks down. It was the worst monthly performance for the tech heavy index since last March.
The U.S. is now in a shooting war over in Iran as it attempts to effect regime change. Oil is spiking in trading Monday as a result. Recent events at Blue Owl Capital (OWL) continue to send ripples across the credit markets. Stocks linked to private credit were under new pressure on Friday as the result of U.K. mortgage provider Market Financial Solutions’ collapse. Apollo Global Management (APO) and Jefferies Financial Group (JEF) dropped more than 8% and 9%, respectively. Shares of Blue Owl fell another 6%.
I don’t believe this is the last cockroach that will emerge in the credit markets. Regulations put in place after the Great Financial Crisis made it more problematic for banks to hold riskier assets such as leveraged loans. The private credit sector has stepped in to fill this void and has experienced impressive growth over the past 15 years. The downside of this migration is that the private credit space is not nearly as regulated or transparent as are public banks. There also seems to be a duration mismatch that is starting to get more notice recently. A lot of these private credit loans run five to seven years in duration, which can be problematic for funds that allow quarterly redemptions. One reason that Blue Owl recently had to put a gate in place.
Block’s (XYZ) decision to lay off 4,000 employees, or 40% of its workforce, as it embraces AI across its operational processes sent new fears across several sectors including software. Although to be fair, some of these cuts in force also could be the result of over-hiring at Block following the pandemic. Investors should monitor whether other companies make similar restructuring announcements in the months ahead. A surge of layoff notices obviously would not be positive for the job markets. Job opening levels are at a five-year low as it is. Job woes won't help consumer sentiment, which is already punk.
On a brighter note, OpenAI did announced it raised $110 billion in new funding on Friday at a $730 billion valuation. This should alleviate concerns around ChatGPT’s creator’s near-term cash needs. That said, $80 billion of that raise consisted of circular financing from NVIDIA Corporation (NVDA) and Amazon (AMZN) .
Also concerning last week was that Nvidia dropped over 8% in the few days following the posting of what were blowout quarterly results last week. For fiscal 2025, the company delivered 65% year-over-year sales growth and demand is showing no signs of slowing down.
March is starting with mounting concerns on myriad fronts. I would not be surprised to see equities to go further in risk off territory to commence the market. I think value will continue to outperform growth and defensive sectors like healthcare and consumer staples will continue to get a solid bid.
In Wednesday’s column, I will highlight some trades I am making to begin the new month.
At the time of publication, Jensen was long AMZN.
