An oil shock, a fragile ceasefire, and inflation running well above target. AI is moving faster than most portfolios have kept up with. Here is where we stand — and how we are positioned.
The first quarter of 2026 did not give investors an easy ride. The S&P 500 closed Q1 down roughly 4.6%, its worst start since 2022. The proximate cause was the Iran conflict, which broke out February 28, closed the Strait of Hormuz, and sent oil above $100 per barrel practically overnight. The resulting inflation shock landed on an economy that was already running warm — and put the Fed in a position where neither cutting nor hiking felt clean.
A ceasefire was announced April 7. Markets bounced. But the damage to the inflation outlook is already done, the Strait is not fully back to normal, and Q1 earnings season is opening into this backdrop with more uncertainty than any reporting cycle since 2022. The question entering Q2 is not whether volatility is back. It is whether the economy can absorb these pressures without tipping into something worse.
Our view: it can, but the margin for error has narrowed considerably, and how your portfolio is positioned right now matters more than it has in several years.
The conflict that broke out on February 28 between the US, Israel, and Iran was the defining macro event of Q1. Iran's closure of the Strait of Hormuz — through which roughly 20% of global oil normally flows — triggered what the IEA described as the largest supply disruption in the history of the global oil market.[1] Brent crude spiked from around $80 per barrel to well above $100, gas prices at the pump surged past $4 nationally, and airline fuel costs followed. The ripple effects are still working through the system.
A ceasefire was announced April 7, and markets responded sharply — stocks jumped and oil pulled back. But the situation remains fragile. Iran struck a pumping station along Saudi Arabia's East-West pipeline just hours after the truce was announced.[2] Traffic through the Strait of Hormuz is resuming slowly, not all at once. And the damage to Qatar's Ras Laffan LNG complex — the world's largest — is not temporary. QatarEnergy estimates the repairs will take three to five years, removing roughly 17% of Qatar's export capacity from the market for the foreseeable future. LNG spot prices in Asia surged over 140% at the peak.[3]
The inflation picture is the piece that concerns us most going into the second half of the year. CPI for March came in at 3.4% year over year — up sharply from 2.4% in February, with energy the primary driver.[4] The OECD is now projecting US inflation at 4.2% for 2026 as a full-year average.[5] That is more than double the Fed's target, and it arrives at a moment when the Fed is already boxed in. Cutting rates into an energy-driven inflation spike risks feeding the fire. Holding or raising into a slowing growth environment risks tipping the economy into the stagflationary scenario that nobody wants.
If tariffs have become a background variable, AI has become the foreground. The pace of development in the past 90 days has been genuinely striking, and three recent data points are worth paying close attention to as investors.
This is the largest private fundraising event in history. OpenAI is approaching 900 million weekly active users and is on track to become the fastest platform ever to reach 1 billion.[6] CFO Sarah Friar confirmed the company plans to reserve a portion of its IPO for retail investors, and its pre-IPO private placement through JPMorgan, Morgan Stanley, and Goldman attracted $3 billion against a $1 billion target — the largest retail private placement those banks have executed. A public filing in the second half of 2026 looks increasingly likely, at a valuation approaching $1 trillion. The company projects $280 billion in revenue by 2030, against more than $20 billion annualized today.
On April 8, Meta debuted Muse Spark, the first model from its new Superintelligence Labs. The notable move here is not the model itself — it is that Muse Spark is closed-source, a significant break from the Llama open-weight playbook that made Meta the default for open AI development.[7] Meta claims the model achieves Llama 4 Maverick-level performance at 10x lower compute cost. For investors, the more important signal is that Meta now appears to be competing directly at the frontier rather than ceding that ground to OpenAI and Anthropic. Rollout to WhatsApp, Instagram, Facebook, and Meta's AI glasses is planned for coming weeks, meaning distribution at a scale no other frontier lab can match.
Elon Musk's $25 billion chip fabrication joint venture between Tesla, SpaceX, and xAI added Intel as a partner on April 7, contributing its 18A process node — the most advanced semiconductor manufacturing process currently in the US.[8] Eighty percent of the facility's projected output is earmarked for a radiation-hardened processor designed for orbital AI data centers, with SpaceX already filing FCC applications to launch one million data center satellites into low Earth orbit. Whether or not the orbital thesis plays out, Terafab signals that the AI infrastructure buildout is moving faster and stranger than most capital market frameworks have accounted for. It is also another data point that domestic semiconductor manufacturing is becoming a strategic asset, not just an economic one.
We are maintaining our 3% equity overweight but have redistributed that risk more intentionally, taking profits on recent winners and pulling back on our most concentrated factor tilts while staying firmly risk-on.
On April 9, Howard Marks published what is likely the most important piece of writing in private credit this year. The memo, titled "What's Going on in Private Credit?", is worth reading in full.[9] The short version: Marks does not see a systemic problem, but he is clear-eyed about what happens when an asset class grows from $150 billion to $2 trillion in two decades without ever going through a full market cycle.
His diagnosis is measured but pointed. Some direct lending managers, he writes, took in too much capital and deployed it too quickly, applying standards that were too low in the process. The result was a "goldrush mentality" that made underwriting discipline the casualty of fundraising momentum.[10] The bankruptcies of First Brands and Tricolor last year were early signals. The more acute concern now is the software lending book — AI disruption has compressed equity cushions at hundreds of PE-backed software companies, reducing the protection that direct lenders relied on when they underwrote those loans.
His bottom line — and ours — is that the current stress in private credit is largely sentiment-driven and flow-driven rather than the product of broad credit deterioration. But he is careful to note that sentiment often precedes fundamentals, and that the fate of direct lending is now deeply tied to the fate of private equity. When PE exits remain constrained, portfolio companies can't be sold, distributions slow, and the loans funding those companies start looking different than they did at origination.
Markets have demonstrated genuine resilience in the face of overlapping shocks over the past year — geopolitical conflict, trade friction, and policy uncertainty all at once. Consumer spending and corporate earnings have held. The S&P 500, measured from the post-election high through today, has still delivered a positive total return since November 2024.
But resilience at elevated valuations requires either earnings to grow into current multiples or multiples to compress. Q1 earnings season opens this week with the major financials, and it will be the first real read on which of those two paths we are on. We will be watching the guidance language closely and updating positioning accordingly.
As always, we are available to discuss how any of this applies to your specific situation. Reach out anytime.
— Haley and Brooks