Indecision Rules Markets For Now

Markets appear to be stuck in a period of indecision as investors fret over private credit, while economic data suggest a solid foundation. At some point, investors will have to

get on the bus along with other investors who are pushing non-Mag 7 names higher or abandon ship altogether. The inspiration for this week's musings is the 1982 song, "Should I Stay Or Should I Go" by The Clash. Here’s some trivia about the song:

• This song was released in the Fall of 1982 and was met with international fervor, but received only average reception in the U.S. It reached No. 17 on the U.K. charts, but only managed to get to No. 45 on the U.S. Billboard charts. While it sold more than 4 million copies worldwide, only about 45,000 copies were sold in the U.S.

• A fascinating tid-bit about this song is that band member Mick Jones states he wrote the song about his then girlfriend Ellen Foley. Foley, who acted on the TV show "Night Court" and had smaller roles in movies such as "Cocktail" and "Fatal Attraction" was also the female singer with Meatloaf on the song "Paradise By The Dashboard Light." Foley has actually stated publicly, "I really don't know if it's about me. It's a good song though, whomever it's about."

• The song also uses Spanish lyrics after the first chorus to echo the English words. Apparently, it was band member Joe Strummer's idea to add the Spanish while they were working the song out in the studio.

• This song, as well as other songs on the album "Combat Rock" had to be toned down for commercial consumption. Producer Glyn Johns was brought in to clean up the songs for play on the radio. John made Mick Jones re-record a few lines from "Should I Stay Or Should I Go" before releasing the single.

• Some have speculated that this song is actually about Jones' position in the band, pre-empting his sacking in 1983. Jones has stated that it was written about a personal situation (presumably his relationship with Foley).

"This indecision's bugging me

Esta indecision me molesta

If you don't want me, set me free

Si no me quieres, librame

Exactly whom I'm supposed to be

Digame quien tengo ser

Should I stay or should I go now?

Should I stay or should I go now?

If I go there will be trouble

And if I stay it will be double

So come on and let me know"

Here's what we've seen so far this week...

This Indecision Is Bugging Investors. Though equity markets have bounced around a little to start the year, there's been no clear direction - either higher or lower. Since

January 12th, the S&P 500 Index has closed no higher than 6,980 and no lower than 6,800. In fact, the S&P 500 has closed within 2.5% of its 50-day moving average for 63 consecutive sessions - it's longest streak since 2018. This means buyers and sellers are evenly matched - indecision. What likely needs to happen is for a catalyst to emerge to force direction one way or the other. Either the market sees economic fundamentals as solid and perhaps an earnings surprise, or liquidity concerns raise doubts about equity strength.

For the moment, concerns over AI and the use of Private Credit have investors guessing about the future of the asset class that has been fueling returns for the past couple of

years. When technology stocks bottomed in April of last year, Mag 7 stocks took off and returned more than 63% by year-end. Conversely, the other 493 names in the S&P 500 Index were up a little more than 24%. Contrast that with the year-to-date data and Mag 7 is down more than 5%, while the other 493 names are up more than 2% for the year. This has to do with the doubts about the future of profitability AI and the concerns over private credit deals that involve AI-related companies.

In November of last year, we warned about the use of private credit by AI firms to help finance the build-out of AI infrastructure and data centers. In that blog post, we

highlighted the amount of credit devoted to AI by private equity firms. If we update that chart with the year-to-date returns of those PE firms (publicly-traded stocks), we can see the downward pressure on those firms as a result of private credit falling out-of-favor, with the average firm down at least 19% for far this year. This week, the failure of Market Financial Solutions (MFS) in Europe bled over into the private credit space as Apollo Global Management (shown in the table above) was among the lenders to MFS. For the time being, default rates on private credit have not increased substantially (according to Proskauer's Private Credit Default Index & Fitch Ratings U.S. Private Credit Default Rate Index), but this is something that needs to be monitored to any signs of stress that could bleed over into public credit markets. So far, credit spreads have not widened to levels we typically see in pre-recessionary periods.

Should Investors Stay Or Go?  The question becomes should investors stay or go when it comes to equities? The answer to that question is determined by how

concentrated one's portfolio is at to-date. As we pointed out at the beginning of this year, mid-term election years typically bring an increase in volatility and pause in upward trajectory. So far, based on historical seasonality, equities appear to be following a similar playbook. However, that doesn't mean that opportunity in certain asset classes and sectors is absent.

Because of the concentration in Mag 7 and AI-related stocks, investors have been fooled into thinking that diversification and asset allocation doesn't matter. Well, that's

usually that case until we discover that asset allocation does matter. Last year, Mag 7 stocks made up more than 30% of the S&P 500 Index and comprised more than 50% of the Russell 1000 Growth Index. It's staggering to comprehend how two indices - one with 500 stocks and the other with 1000 stocks - could have been concentrated in just a handful of names. That has reversed itself this year. While Mag 7 drove returns in 2025, that group is down more than 5% so far this year, while some of its competitors - Mid-caps, Small Caps, & International equity - are up more than 9% so far this year.

Double Trouble?  As if private credit wasn't enough to worry investors, recent issues surrounding high-frequency trading and algorithmic trading point to some of the spike

in volatility with regard to certain asset classes. Earlier this week, the bankruptcy manager for Terraform Labs filed a lawsuit against Jane Street Group (a high-frequency trading firm) accusing the firm of "front-running" trades which accelerated the 2022 collapse of Terraform. This lawsuit is in addition to India's Securities and Exchange Board accusing Jane Street of manipulation of certain stocks on the Indian exchange. It was further revealed that as of the end of Q4, Jane Street is the largest holder of iShares Silver Trust ETF (SLV). Whether or not Jane Street is guilty of what it has been accused of doing, the point of all this is what we mentioned a few weeks ago when precious metals were plummeting. When prices move in erratic fashion, with little-to-no-change in fundamentals, there's something unnatural afoot and investors are wise not to take unnecessary action. In the case of Silver, prices have stabilized and appear to be trading based on market fundamentals and not price manipulation.

Despite concerns, economic fundamentals remain strong. Both Jobless Claims and Continuing Claims were lower this week and remain at low levels compared to other

pre-recessionary periods. Consumer spending, as measured by the Redbook Sales, continue to show a resilient consumer overall. The St. Louis Fed's Financial Stress Index remains below zero and shows a financial system not exhibiting the typical signs of an impending recession.

The manufacturing sector is showing signs of recovery, along with industrial production (as we pointed out last week). After hitting a 3-year low in October of 2024,

manufacturing production has improved over the last 16 months and has reached a new 3-year high. In addition, the regional Fed manufacturing indices, with the exception of Richmond, are all on the mend have improved since hitting lows last year. Despite the worries over seasonality, private credit, and volatility, there are not enough warnings signs to justify concern about an imminent recession. The best course of action right now is to limit concentrations and remain diversified.

Here's the video of The Clash hit...

https://www.youtube.com/watch?v=xMaE6toi4mk

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.