For the period covering March 1, 2026, through March 31, 2026.

Global Perspective

Elevated Oil Prices: Shock or Signal?

Developments in Iran and the temporary disruption of energy flows through the Strait of Hormuz pushed oil prices back above $100 per barrel during March, with Brent ending the month over $110 per barrel, refocusing markets on the inflationary consequences of energy shocks. Oil has once again become a primary driver of headline inflation, though importantly, it has not yet flowed meaningfully into core inflation. So, while the concern of a rise is real—it is also contained for now.

Markets are wrestling with a critical question: Is this a short-lived disruption or the beginning of a sustained supply shock? Duration, not magnitude, will determine the economic impact. A brief spike would amount to a growth “tax” with limited policy implications. But a prolonged disruption would have substantial consequences for inflation, GDP, and monetary policy globally.

Why This Isn’t the 1970s

Despite the headlines, today’s energy backdrop looks fundamentally different than past oil crises. Global oil supply is far more diversified, U.S. production is at record levels, and oil intensity—how much oil is required per unit of GDP—has declined materially over the past decade. Structural shifts toward renewables, natural gas, and more efficient industrial processes have changed the equation.

In the 1970s, OPEC controlled roughly half of global supply, and the U.S. was a large net importer. Today, the Middle East accounts for closer to 20–30% of supply, and the U.S. is the world’s largest producer and a net exporter. Oil may still move markets—but it no longer holds the same economy-wide leverage.

Stagflation: A Tail Risk, Not a Base Case

While stagflation fears have resurfaced, they remain a tail risk—high impact, low probability—not a central scenario. Global GDP expectations over the medium term remain surprisingly resilient, even as near-term growth forecasts have softened. The real vulnerability lies outside the U.S., particularly in Europe and parts of Asia, where energy dependence and higher import costs could weigh more heavily on activity.

What We’re Watching Closely

1. Sustained multi-quarter losses in global oil supply.
2. Meaningful depletion of strategic petroleum reserves.
3. Persistent acceleration in inflation beyond near-term horizons.

A change in any of these would warrant a reassessment of today’s otherwise constructive outlook.

Equities Overview

Markets Treat the Energy Shock as a Blip

Equity markets seem to be signaling that this is a temporary disruption rather than a prolonged oil crisis. Share prices of major energy producers like ExxonMobil and Chevron have gained only modestly since the conflict escalated — even given the damage to large natural gas facilities in the Middle East region, which can take years to rebuild. This reflects long-dated hedging, a relatively flat futures curve (longer-term price projections show much of the same), and skepticism that elevated prices will persist. 

Resilient Earnings Rise Above Noisy Markets

Despite volatility beneath the surface, equity fundamentals remain strong. Earnings for U.S. equities are still projected to grow approximately 17% in 2026, with further growth expected next year. GDP estimates beyond the next few quarters have barely budged — an important reminder that markets tend to overshoot near-term risks. In fact, historically, periods of geopolitical stress have often created buying opportunities, not lasting equity drawdowns. Ignoring headlines and focusing on fundamentals has consistently been rewarded over time.

The Dollar Acts as a Shock Absorber

The U.S. dollar experienced several quarters of range-bound trading (largely unchanged) reinforcing its perceived role as a global safe-haven asset. Moves in the dollar have shown a strong inverse correlation with international equities, particularly in emerging markets and Europe. This dynamic further underlines the relative attractiveness of U.S. assets in a world where energy price shocks disproportionately pressure non-U.S. economies. From this perspective, the U.S. has a competitive advantage with respect to lower import costs. 

AI Capex Shifts from Code to Concrete

Hyperscaler demand remains intact, with market expectations still pointing to trillion-dollar AI-related investment needs by 2027. What’s changed, however, is where that AI capital is flowing. Technology capex is increasingly spilling into utilities, energy infrastructure, manufacturing, and industrials—fueling what looks like a quiet re-industrialization of the U.S.

This shift favors HALO (Heavy Asset, Low Obsolescence) assets—capital‑intensive, physical assets that stay useful for a long time and don’t become outdated quickly—and helps explain the growing divergence between software valuations and earnings. While software valuations have dropped sharply, earnings growth remains strong—creating a narrative gap (a disconnect between market sentiment and underlying fundamentals) that active investors may be able to exploit.

Fixed Income Overview

Rate Cut Expectations Get Recalibrated

At the start of the year, markets were pricing in multiple Fed rate cuts. That optimism has faded. While rate hikes are not the base case, the expected path has shifted meaningfully higher, with the market now pricing in fewer cuts in the near term. Short‑term interest rates have risen, while long‑term rates have barely changed. This means investors expect borrowing costs to stay elevated in the near term, but are less convinced that inflation or economic growth will remain strong over the long run. As a result, the difference between short‑ and long‑term rates continues to shrink — a pattern known as a flattening yield curve. This reflects two competing forces at work: concerns that slower economic growth will eventually push rates lower, while rising inflation expectations and increased government borrowing are keeping upward pressure on rates.

Credit Markets Keep Composure—for Now

Despite heightened macro uncertainty, credit spreads remain relatively tight—meaning investors are still demanding only a modest premium to lend to corporations over U.S. Treasuries. While spreads in both investment‑grade credit and high‑yield bonds have widened somewhat, they remain well below levels that have historically marked periods of stress or compelling buying opportunities. Put simply, the credit market is acknowledging risk—but it is not pricing in significant financial strain. This suggests that confidence in corporate balance sheets remains intact, even as volatility rises. For investors, this implies selectivity and patience are warranted—since more attractive entry points in credit markets typically emerge only when spreads widen more meaningfully, making credit more attractively priced.

Municipals: In Demand but Richly Priced

Municipal bond valuations remain elevated, with yields hovering around 60% of comparable Treasuries, well below the historical norm closer to 80%. In simple terms, investors are willing to accept lower yields in exchange for tax‑exempt income. Strong demand—particularly from high‑income investors—continues to support prices, keeping municipal bonds expensive and supply tight. While the higher prices offer little cushion, municipal bonds continue to attract demand because tax‑free income is difficult to replace—especially for investors focused on after‑tax results.

Alternatives Overview

Private Credit Faces a Liquidity Test—Not a Credit Crisis

Recent elevated redemption requests at several large, direct-lending-focused private credit platforms have captured investor attention. But it’s important to note that this is a liquidity event, not a deterioration in underlying credit quality or fundamentals. Gating mechanisms—which are often misunderstood—are functioning exactly as designed. They protect long-term investors from forced selling at distressed prices, and ensure that redemptions occur at an orderly pace aligned with the long‑dated nature of the assets. Importantly, underlying loan performance remains stable, emphasizing that this is a matter of timing and structure, not solvency. As a result, these dynamics highlight the importance of treating private credit as a long‑term allocation, rather than a short‑term trading vehicle.

Context Matters: Why This Isn’t 2008

Redemptions at major platforms like Blue Owl, Ares, and Apollo have exceeded quarterly thresholds, but managers have honored contractual limits. For instance, Apollo received redemption requests exceeding 11% of outstanding shares in Q1, honoring up to the 5% gate cap—roughly $730 million—without disruption.

Importantly: This does not resemble 2008. These vehicles are isolated financial institutions, not big banks—which means they do not rely on short-term funding, and they are not systemically interconnected in the same way. More recent vintages are underwriting at higher yields with more conservative structures, preserving long-term return potential.

The Bottom Line: Structure and Manager Quality Matter More Than Headlines

Direct lending overall remains fundamentally sound, and its impact to the overall economy remains confined but the current environment reinforces why manager selection and fund structure matter more than ever. These strategies are designed as long‑term allocations, not tactical trades, and their liquidity features are intentional—not accidental. Investors who understand and align with those characteristics are best positioned to benefit from the attractive income and risk‑adjusted returns that high‑quality private credit can offer over time.

A Look Ahead

What We’re Watching—and Why

1. Inflation and Policy: Duration Will Drive Decisions

   We’re monitoring whether higher energy prices persist long enough to influence wages, services, and longer‑term inflation expectations. Near‑term inflation pressures are likely to remain elevated if oil prices stay high, but medium‑term inflation expectations remain well anchored. The difference matters. Central banks—particularly outside the U.S.—are watching closely to see if energy‑driven inflation proves temporary or begins to bleed into broader price dynamics. Policy responses will depend less on headline inflation and more on whether persistence, not just price spikes, takes hold.

2. Global Growth: Energy Exposure Shapes the Risk Map

   We’re watching for any divergences in global growth driven by relative energy costs and supply flexibility. Real economic growth risks remain skewed internationally rather than domestically, as higher energy costs weigh more heavily on energy‑dependent regions. The U.S. continues to benefit from lower relative energy input costs, domestic supply resilience, and a stronger dollar—providing a competitive advantage in a fragmented global environment. Europe and parts of Asia, by contrast, remain more exposed to sustained energy disruptions, increasing the likelihood that global growth softness shows up abroad first.

3. AI and Capital Spending: Follow the Knock-On Effects

   We’re paying attention to where AI‑driven investment is flowing next—and who benefits beyond technology. The AI‑driven capital spending cycle remains intact and is becoming increasingly broad‑based. Investment is extending well beyond software and semiconductors into power generation, grid infrastructure, manufacturing capacity, and industrial inputs. These second‑order effects matter because they anchor AI growth in real‑world assets and support a multi‑year investment cycle less sensitive to near‑term volatility.

Bottom Line: Focus on Signals, Not Headlines

Markets are navigating noise—not a fundamental regime shift. What ultimately matters is not how dramatic today’s headlines appear, but how long disruptions persist and whether they alter underlying growth, inflation, or earnings trajectories. For long‑term investors, maintaining discipline, patience, and selectivity—while watching the right signals—remains the most reliable way to improve outcomes over time.

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®.

This information is not intended as a recommendation. The opinions are subject to change at any time, and no forecasts can be guaranteed. Investment decisions should always be made based on an investor’s specific circumstances. Investing involves risk, including possible loss of principal.

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