Investors keeping a weather eye on financial markets may have sensed a shift in the winds this week. We must be wary of reading too much into short-term market movements – particularly at a time when globally significant headlines seem to appear by the hour. Nonetheless, we believe there is value in understanding the challenges to which the market is reacting and asking whether there might be some common cause. We would highlight six significant developments from the past week alone:
- Economic Concerns: US GDP grew at an annualised rate of close to 5% in the fourth quarter of 2025. Yet there are signs that all is not well. The latest of these came from two separate data points released this week, both pointing to unexpected weakness in the all-important labour market.
- Federal Reserve Policy: Kevin Warsh was nominated as the Trump administration’s pick to lead the Fed, once Jerome Powell’s tenure comes to an end in May. Based on past statements, his policy approach is not straightforward. However, the market has interpreted his nomination as reducing the risk that a politicised Fed will debase the dollar and overtly support the relentless expansion of the US government deficit.
- AI Vs Software: Anthropic, the company behind the Claude chatbot, released a new tool that aims to automate many administrative functions. This led to a sharp sell-off in the shares of companies offering ‘software as a service’ products which could, in theory, be replaced by AI-based solutions.
- US Tech CapEx: the US tech sector behemoths reported strong earnings growth. However, this was overshadowed by expectations of truly enormous capital expenditures in the quest to ‘win’ the AI arms race. Alphabet, Amazon, Meta and Microsoft will spend an estimated $660bn this year alone – 60% more than last year and $80bn more than their combined operating cash flow. Investors are increasingly questioning the investment returns that can reasonably be expected on these expenditures, wiping c$900bn off the market value of Alphabet, Amazon and Microsoft since they filed their earnings reports.
- Funding: Jensen Huang made headlines when he cast doubts on the scale of Nvidia’s potential investment in OpenAI. But there are suggestions that funding might also be getting harder to secure away from the spotlight too. For example, an ETF tracking private credit loans sank to levels not seen outside the depths of the pandemic.
- Speculative Strains: prices of assets that had previously been soaring went into sharp retreat this week. The list of casualties included bitcoin and other crypto tokens, adjacent equities such as Strategy Inc, highly valued AI participants like Palantir, and even real assets such as gold and silver that many consider ‘safe havens’ in times of market stress.
Fig.1: Share Price Performance of Microsoft, Palantir & Strategy Inc, Year-to-Date (Rebased)
Investors might be forgiven for thinking the market’s gyrations are simply a one-week whirlwind of unfortunate coincidences. If so, the various challenges could be easily brushed off, and asset prices consequently left free to resume their upward march. Certainly, at the time of writing, it seems investors are happy once again to ‘buy the dip’ in anticipation of a smooth resolution.
In our view, this week’s developments are not mere coincidence. Record government deficits, central bank dependencies amid the financialisation of the economy, the explosion of venture capital and private credit, multitrillion-dollar technology moonshots, sky-high equity valuations, triple-digit returns for supposed ‘safe havens’, the entire crypto industry: all are symptoms of excesses in the financial system.
Individually, each of this week’s developments poses a threat to investors. However, the common underlying cause suggests to us that it is more likely that the apparently disparate vulnerabilities erupt in everything, everywhere, all at once. We firmly believe the only sensible course of action is to position portfolios to protect against the risk of such a damaging scenario. This insurance policy remains valuable unless or until the underlying issue is remedied – even if the symptoms that flared up so conspicuously this week quickly fade from view.
