Iranian Conflict Wreaks Havoc On Global Equities

Global equities took it on the chin last week as the Iranian conflict continued. As oil prices have spiked, there's been somewhat of a flight to safety. Investors have moved

back to dollar-denominated assets and we saw the dollar rally more than 1% last week. The question now becomes how long does the conflict last? Longer conflicts that last multiple years tend to produce negative returns at least 12 months later, by as much as -2% on average. By contrast, shorter conflicts that last only days or months tend to result in positive returns 12 months later, as high as 10% on average.

Private credit is also pressuring markets, with many investors questioning how deep does the exposure go? If these loans comprise only 10% of any major bank's balance

sheet, that's one thing. But if it goes much deeper, that is when we could see some of contagion. Bank lending to non-banks and Non-depository Financial Institutions (NDFIs) has reached an all-time high. So far, we have not seen anything spill over into the public credit space, which would indicate perhaps that it's not too much deeper. Private equity firms seemed to stabilize some last week, with names such as KKR and Apollo more than 1% off their respective lows. We would like to see private equity firms stabilize even more before declaring any kind of victory.

Last week's jobs report was unexpectedly bad, but there were also some bright spots among economic data. The labor market report showed job losses of -92,000 when

the market had forecast 58,000 jobs to have been added. It's important to note that we have seen negative jobs numbers in one-off months, even during economic expansions. On the bright side, job cuts (-108,000) dropped the most since August of 2022. In addition, Jobless Claims were lower for the week and no where near pre-recessionary levels. Things can change quickly, but as we stand here today, current volatility could prove short-term in nature. Diversification is the name of the game for the time being, but we could see more volatile trading this week.

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