Momentum
Our barometer is currently at a neutral level, but it is highly likely to shift toward a bearish direction this week following the attack on Iran.
Q&As
How will the stock market react on Monday following the attack in Iran?
On Saturday, Supreme Leader Ayatollah Ali Khamenei was killed in a joint U.S.-Israeli attack against Iran. And as is customary, the attack took place on a Saturday to ensure that the impact on the stock market would be moderate.
Beyond the political narrative, what truly matters to the markets is the effect on oil, inflation, and the geopolitical balance. And here, the critical variable is the Strait of Hormuz: nearly 20% of the world’s crude oil passes through this waterway. Any disruption automatically drives up the risk premium in the energy sector.
If the conflict escalates and the Strait of Hormuz is disrupted for a sustained period, the price per barrel could climb toward the $120–$130 range. OPEC has already announced that it will increase oil production to stabilize the market. This conflict implies increased global inflationary pressure and less room for the Federal Reserve to cut interest rates. More expensive energy means higher transportation costs, more expensive food, and more jittery markets. Trump and his team will attempt to avoid an escalation at all costs, but it is most likely that this conflict will persist for several weeks.
It is worth noting that wars have historically triggered market downturns, although selling in the midst of a conflict is usually a mistake. An analysis by Carson Research—spanning 80 years of wars, terrorist attacks, crises, and financial collapses—reveals a result that shatters the panic-driven narrative: over a 12-month horizon, the S&P 500 posted positive returns in 65% of cases. Rather, these types of conflicts often present interesting buying opportunities (assuming the conflict does not trigger a global recession).
Yesterday, Sunday, we observed the market’s initial reactions, which are noteworthy: Bitcoin—following an initial correction on Saturday and a rebound today, Sunday—has remained relatively stable, hovering around the $66,000 mark. For its part, the Saudi stock market—the Tadawul All Share Index—fell just 2.2%, and would likely have retreated further had it not been for Aramco, which accounts for nearly 16% of the index, rising approximately 4%.
Historical Context
It is important to understand that Iranians are not Arabs. The majority of Iran’s population is Persian—a people with Indo-European roots and a history dating back to the ancient Persian Empire. Culturally and ethnically, they are distinct from the Arab world, although they share the Islamic faith to varying degrees. Nor do they speak Arabic. The official language is Farsi (or Persian), which belongs to the Indo-European language family and is completely different from Arabic, even though it employs an alphabet based on Arabic characters.
On the religious front, there is also a significant difference. Iran is predominantly Shia Muslim, whereas the majority of Arab countries are Sunni Muslim. This division between Shias and Sunnis has shaped much of the political and geopolitical dynamics of the Middle East for decades.
In 1979, a radical shift occurred in the structure of the Iranian state. Following the Islamic Revolution, Ayatollah Ruhollah Khomeini seized control of the country and transformed the Shah’s monarchy into an Islamic Republic. From that moment on, the political system came to be directed by a supreme religious authority, establishing a theocracy in which political power was subordinated to clerical leadership. The national flag was modified to incorporate Islamic symbols; the national anthem was replaced; and the legal and educational systems underwent profound reform based on Islamic principles. The Persian language remained, but the country’s political identity and institutional structure were fundamentally transformed.
In summary, Iran is a nation with a Persian identity—culturally distinct from the Arab world—that, since 1979, has been organized as an Islamic republic under Shia religious leadership. For this reason, a significant segment of the Iranian people celebrates the downfall of Khamenei.
More Than an Attack: A Strategic Maneuver
First, the official justification for the attack on Iran was that Tehran had reached a level of enrichment sufficient to develop nuclear weapons. However, other possible—albeit unofficial—reasons could stem from the fact that Iran is currently in a moment of vulnerability, having brutally repressed its population following recent mass protests. During these protests, the government restricted internet access to isolate the country, while security forces reportedly caused thousands of deaths and detentions (estimates range from 20,000 to 30,000 casualties and prisoners), all against a backdrop of inflation exceeding 60% and growing popular discontent. Furthermore, with parliamentary elections scheduled in Israel for October and midterm elections in the United States for November, both governments may be incentivized to act now in an attempt to bolster their standing ahead of those polls.
Beyond the military episode itself, these events can be interpreted as part of a broader U.S. geopolitical strategy to contain and undermine the network of influence that China has built over the last two decades. Within this framework, Washington appears to have diminished Beijing’s leverage at several key junctures—a scenario I describe as a “5–0 lead for the U.S. against China” since Trump took office: 1) Gaza, where the U.S. sidelined China as a diplomatic mediator; 2) Panama, where the U.S. ousted the Chinese companies controlling the Canal; 3) Nigeria, which had been supplying China with cheap oil; 4) Venezuela, serving as a supplier of cheap crude oil and a strategic sanctuary for Iran, Russia, and China within the Americas; and 5) Iran, a strategic linchpin for oil supplies bound for China and a key player in the stability of the Middle East. The attack on Iran was executed only after access to Venezuelan oil had been secured; the sequence of events now becomes clear.
Winners
The energy sector will be the first to react positively, particularly producers located outside the Persian Gulf. In this context, Brazil emerges as a potential beneficiary: high oil prices improve its terms of trade and strengthen both its currency and its financial assets.
Defense companies and manufacturers of anti-drone systems also stand to be winners. The incidents in Dubai sent a clear message: air defense is no longer solely a military concern, but also a critical issue for civilian infrastructure. Spending in this segment could accelerate in a structural manner.
Losers
80% of the oil flowing out of the Gulf is bound for Asia, making this region the most heavily affected. China relies significantly on Gulf crude passing through the Strait of Hormuz—accounting for 30% of the total flow through the Strait—in addition to absorbing the vast majority of Iranian oil exports (85%). Japan imports nearly 80% of its oil from the Middle East, largely via this route; South Korea transports approximately 60–70% of its crude through Hormuz; and India receives more than half of its oil imports from the Gulf via this strait—amounting to over 2 million barrels per day. Furthermore, although the physical damage was limited, tourism in Dubai relies heavily on the perception of safety, and that perception has now been put to the test.
Incidentally, let me make a brief aside. It is now clearer than ever why China is betting so heavily on renewable energy. They recognize their extreme vulnerability regarding oil supplies that transit through strategic routes such as the Strait of Hormuz; moreover, following this move by the United States, they realize that their energy security could become even more beholden to geopolitical dynamics in which Washington wields decisive influence.
Initially, Iran will likely be the primary loser, given that it effectively launched attacks against almost everyone. It struck at the Gulf nations (the United Arab Emirates, Bahrain, Kuwait, Qatar, and Saudi Arabia), and also targeted British bases located in Cyprus. By attacking the United Kingdom, NATO is brought into play; and since the attack took place on Cypriot soil, the European Union becomes automatically implicated. However, if Iran is ultimately liberated, it will emerge as the biggest winner in the end.
On the stock market, we will see stocks in general—particularly airlines, the leisure sector, and industries dependent on oil consumption—emerge as the day’s losers.
Conclusion
On Monday, the stock market will likely open with volatility—with oil and gold on the rise, the energy and defense sectors taking the lead, and general downward pressure on equity markets (particularly in China and sectors sensitive to consumer spending and transportation, such as airlines)—due to potential expectations of rising inflation and possible disruptions to energy supplies.
If you are interested in gaining a better understanding of what might unfold in Iran in the near future, I recommend reading this interview with renowned Islamic scholar Reinhard Schulze, originally published on March 1st in Switzerland’s SonntagsZeitung and translated into Spanish here.
Why Is the Market Misinterpreting This?
NVIDIA founder and CEO Jensen Huang recently stated in an interview that current investor pessimism regarding many software companies—particularly SaaS firms, which have undergone sharp corrections in the stock market—stems from a profound misunderstanding of how artificial intelligence actually works.
According to Huang, AI agents are not here to replace existing software, but rather to utilize it. Just as a household robot would not invent a new microwave but would instead learn to use the one already in the kitchen, AI agents will employ tools such as Excel, Salesforce, or SAP to execute tasks on behalf of humans. They do not destroy the current ecosystem; they operate it.
In fact—counterintuitively—Huang argues that software usage could actually increase significantly. If, in the future, there are hundreds of thousands of “digital employees,” they will consume and operate current software tools with far greater frequency and speed than humans do, thereby boosting the demand for digital infrastructure rather than diminishing it.
Furthermore, platforms like ServiceNow and SAP play a fundamental role as “systems of record”—that is, as the official, structured repositories for enterprise data. AI agents require these systems to store, organize, and validate final information. Without them, automation would lack a solid foundation. Consequently—far from becoming irrelevant—these platforms remain absolutely essential.
As for software engineers, Huang notes that their work will not disappear, but rather evolve. Instead of writing code line by line, they will communicate their intentions to AI agents that will execute much of the technical work. The human role becomes more strategic and productive, while AI takes on the repetitive execution.
In short, for Huang, the narrative that AI will destroy the SaaS model is simplistic. What is coming is not a substitution, but an amplification of existing software.
Why Is the Private Credit Market Falling, and What Risks Are Emerging?
A sell-off in the private credit market has rattled prices and investor sentiment over the past few weeks. First and foremost, the sector has grown from being relatively small following the 2008 financial crisis to holding nearly $2 trillion in assets under management—or even over $3 trillion, according to some estimates. This rapid expansion over the last decade has transformed non-bank lenders into central players in corporate finance outside of public markets.
The immediate spark for this correction was ignited by liquidity issues and redemption requests at one of the largest private credit managers, Blue Owl Capital. The firm permanently restricted withdrawals from one of its credit funds and began selling off assets totaling over $1.4 billion, causing its shares to plummet by around 30% in recent months. This decision sparked alarm among investors regarding the ability of similar funds to provide liquidity, given that they commit capital to loans that do not trade publicly and that traditionally entail long-term maturities.
At the same time, the credit quality of the private credit universe has shown signs of deterioration: rating agencies report that downgrades are vastly outpacing upgrades, with the volume of companies classified as higher-risk rising from around 12% to 16% of the total within a single year, and default rates climbing above levels seen a year ago. This coincides with an environment in which many highly leveraged companies—particularly in sectors such as software and technology, which feature prominently in direct lending portfolios—face uncertainty stemming from competition, technological shifts, and margin pressure. Consequently, investors are re-evaluating risks and withdrawing capital from strategies now perceived as more vulnerable. The backdrop to these problems is a combination of increased capital flowing into private credit strategies in recent years, lending structures that are less transparent than those in public markets, and an economic cycle in which borrowing costs have risen from historic lows. In many cases, loans offered by private credit funds are not designed to withstand large waves of redemptions; consequently, when investors demand liquidity en masse, managers are forced to sell assets at unfavorable times or restrict withdrawals, thereby fueling price volatility.
In summary, the sell-off reflects a combination of liquidity stress, signs of deteriorating credit quality, concerns regarding exposure to cyclical or technologically vulnerable sectors, and redemption panics that have created a feedback loop, driving down prices and heightening risk aversion within segments of the private credit market previously considered resilient. While some market participants caution that these signals may be transitory or specific to certain strategies, the current correction is having clear repercussions on market sentiment and asset valuations within the private credit space.
Key Figures:
Reported default rate for private companies: approximately 5.8% (Fitch), with the estimated “shadow default” rate hovering near 6% or higher.
Total bank exposure to hedge funds, private credit, and other NBFIs: nearly $4.5 trillion (~9% of total bank lending).
Direct bank lending to the private credit sector: approximately $300 billion in the U.S.
Example of a bank with significant exposure to this segment: Wells Fargo, with approximately $60 billion.
Against this backdrop, the appetite to liquidate positions appears to have manifested primarily as sell-offs in the shares of publicly traded private credit managers—rather than as a massive surge in defaults or actual contagion spreading to the rest of the industry. Consequently, many experts believe that current price declines may be “overreacting” to the actual risks present within these portfolios.
Key Data from Last Week
🟢 CB Consumer Confidence (FEB): 91.2 vs 87 expected
🟢 Chicago PMI (FEB): 57.7 vs 52.8
🔴 Core PPI YoY (JAN): 3.6% vs 3.0%
🔴 PPI YoY (JAN): 2.9% vs 2.6%
Key Data for This Week
Monday
ISM Manufacturing PMI (FEB): 52.3 (expected)
Wednesday
ISM Services PMI (FEB): 54.0
Friday
Non-Farm Payrolls (FEB): +60K
Retail Sales MoM (JAN): +0.1%
Unemployment Rate (FEB): 4.3%
Momentum categoría de activos principales
Oro | 5’296 | +22.01% YTD (momentum: sobrecomprado)
Emerging Markets (EEM) | 62.58 | +14.38% YTD (momentum: sobrecomprado)
Real Estate (VNQ) | 95.60 | +8.14% YTD (momentum: sobrecomprado)
Euro Stoxx 50 | 6’137 | +5.48% YTD (momentum: sobrecomprado)
China (CSI 300) | 4’710 | +1.74% YTD (momentum: neutral)
S&P500 | 6’878 | +0.49% YTD (momentum: neutral)
Nasdaq100 | 24’960 | -1.15% YTD (momentum: neutral)
BTC | $66’352 | -24.17% YTD (momentum: sobrevendido)
Sectores
🟢 Top
1️⃣ Energy (XLE) +25.07%
2️⃣ Telecom (XTL) +20.10%
3️⃣ Materials (XLB) +17.77%
🔴 Flop
1️⃣ Financials (XLF) -6.10%
2️⃣ Consumer Discretionary (XLY) -2.14%
3️⃣ Nasdaq 100 / Growth (QQQ) -1.14%
Estilos de inversión
1️⃣ Value (VTV) +8.52%
2️⃣ Low Volatility (SPLV) +8.37%
3️⃣ Quality (QUAL) +3.14%
4️⃣ Momentum (MTUM) +1.06%
5️⃣ S&P 500 (SPY) +0.60%
Yield Spread
The spread between the 10-year Treasury yield and the 3-month Treasury yield is, historically, one of the most reliable leading indicators of the economic cycle in the United States. The chart displays over five decades of data and a pattern that repeats with remarkable consistency: whenever the yield curve inverts for a prolonged period and subsequently normalizes, the economy enters a recession shortly thereafter.
Currently, the spread stands at around +0.30%, meaning the curve has returned to positive territory following an extended period of inversion throughout 2022 and 2023. At first glance, a positive yield curve might be interpreted as a healthy sign. However, historical analysis demands looking beyond such a superficial reading.
Yield curve inversion occurs when short-term interest rates exceed long-term rates—a phenomenon that typically reflects restrictive monetary policy and expectations of a future economic slowdown. It is the market signaling that current conditions are unsustainable. Yet, the true turning point usually does not occur at the moment of inversion, but rather when the curve begins to steepen again.
In the cycles of the early 1980s, 1990, 2001, 2008, and 2020, the sequence was clear: first, a persistent inversion; then, a rapid normalization; and subsequently, a formal entry into recession. The underlying reason is structural. Normalization typically does not occur because the economy is strengthening, but rather because the market begins to price in aggressive interest rate cuts by the Federal Reserve in response to an evident deterioration in economic activity. In other words, the curve steepens because short-term rates fall sharply—not because long-term rates rise due to expectations of robust growth.
Consequently, when the yield curve returns to positive territory following a prolonged inversion, it has historically served not as a sign of relief, but as a warning that the economic cycle is entering its final phase. While it may not be a precise indicator for market “timing,” it is a reliable indicator of direction. And in terms of direction, the message has remained consistent for over half a century. The fact that the spread has turned positive again today compels us to ask the key question: are we witnessing a sustainable re-acceleration of the economy, or a market anticipating monetary easing forced by weakness? If history serves as a guide, normalization following a deep inversion has rarely proven to be good news for growth in the quarters that follow.
This does not imply that a recession is imminent, but rather that macroeconomic risk increases significantly at this stage of the cycle. In the past, ignoring this signal has proven costly.
Investment Clock
I have decided to shift the model to “Late Cycle” based on a combination of macro and market signals.
First, the yield curve. As I mentioned previously, following a prolonged inversion, the normalization of the 10Y–3M spread has historically preceded phases of economic deceleration. Historically, this has been one of the most reliable signals of the economic cycle.
Second, sector leadership. Currently, Energy, Materials, Consumer Staples, and Industrials are standing out—sectors typically associated with the late phase of the cycle. When the market rotates toward these segments, it is usually because growth is losing momentum and positioning is becoming more defensive, or more closely tied to inflation and real assets.
Third, interest rates—both the Fed’s and those of other industrialized nations (with the exception of Japan, given its historical context of deflation)—are trending downward. This is characteristic of the late stage, when the market begins to price in slower growth and eventual rate cuts.
Fourth, the investment styles currently outperforming the S&P 500. Low Volatility, Quality, and Value strategies are beating the broad market index—another classic signal of a mature cycle. In early expansionary phases, Momentum and Beta tend to dominate; in late phases, the market rewards strong balance sheets, stable cash flows, and reasonable valuations.
The only factor still suggesting continued expansion is earnings performance (EPS), which remains on an upward trajectory. However, I would not be surprised if this dynamic begins to cool off—particularly given the heavy capital expenditure (capex) by major tech firms and the consequent decline in share buybacks (which could pressure margins), as well as the risk of an oil supply shock resulting from an attack on Iran, which could drive up inflation and ultimately tip the economy into recession.
It is important to clarify that I manage this “economic cycle clock” in parallel with Safra Sarasin Bank, which currently maintains its reading within the expansionary phase. I am consciously front-running the shift toward the late phase. Last year, I did something similar, and the bank subsequently adjusted its model in that direction (obviously not because of me—I simply got ahead of them). Later on, the bank’s model returned to the expansion phase, and I, too, adjusted my model to “expansion.” Now, however, the majority of indicators lead me to conclude that the late phase has already begun.
Historically, the “late” stage typically lasts between six months and two years.
Twits destacados
AI Portfolio – Week 10
Objective: Continue to outperform the S&P 500 (SPX) as a professional investor.
📊 New Allocation – Week 10
🔹 GLD (physical gold): 31% → 30% 🏆
🔹 TLT (long-term U.S. Treasuries): 27% → 28%
🔹 XLV (U.S. healthcare): 11% → 12% ⚕️
🔹 VTC (investment-grade corporates): 10% → 9%
🔹 SHV (short-term Treasuries / cash): 7% → 6% 💵
🔹 QQQ (Nasdaq-100): 4% → 6% 🤖
🔹 SMH (semiconductors): 4% = ⚡
🔹 SPY (S&P 500): 3% =
🔹 ACWX (global ex-US equities): 2% → 1%
🔹 IWO (U.S. small-cap growth): 1% =
🎯 Tactical Adjustments
1️⃣ Increased Duration – TLT +1%
The “higher for longer” narrative is losing steam. If macro data continues to cool, TLT’s convexity once again becomes an alpha generator. This isn’t just a hedge; it represents offensive positioning for an economic slowdown.
2️⃣ Slight Reduction in Gold – GLD -1%
Gold remains our structural anchor (and our primary performance driver YTD); however, following its strong rally, we are marginally reducing our exposure to fund increased duration and a bit more technology exposure. This is risk management, not a shift in our core thesis.
3️⃣ Reintroducing Selective Beta – QQQ +2%
If the market attempts a technical rebound, it will likely be driven by high-quality mega-cap stocks. We do not want to be completely sidelined should a short squeeze or tactical extension occur. This represents controlled exposure, not an aggressive pivot.
4️⃣ Enhanced Sectoral Defense – XLV +1%
Healthcare continues to offer the optimal balance between defensive characteristics and earnings visibility. During periods of mild economic deceleration, the sector typically outperforms. 5️⃣ We reduced liquidity and IG credit exposure.
SHV -1% and VTC -1%. Our liquidity position provided protection. Now, a portion of that capital is being put to better use in long-duration assets and quality equities.
🧠 Macro View: Week 10
The market has begun to price in weaker growth.
We do not observe credit spreads widening sharply → there is no panic.
If the “soft landing” scenario holds, quality equities will remain resilient.
If the probability of a “hard landing” increases, long-duration assets and gold will once again take the lead.
We are positioned for both scenarios, though with a clear preference for an economic slowdown accompanied by a gradual decline in real yields.
📈 Performance Update (Approx.)
AI Portfolio: +9.13% YTD
SPY: +0.49% YTD
➡️ Outperformance: +8.64%
