3 Market Headwinds, 3 Indicators to Watch
The S&P 500 dropped moderately last week, largely due to the lack of de-escalation in the U.S./Iran war, which sent oil prices sharply higher. The ongoing conflict now adds a third headwind to this market, joining private credit concerns and AI anxiety. Importantly, while media coverage is rightly focused mostly on the war, all three represent risks to the rally, and so we need to monitor all three simultaneously. To that point, I want to update the state of each and identify a singular indicator we can watch to “tell” us if the situation is getting better or worse.
Headwind 1: U.S./Iran War. Indicator: Oil prices. The market is trading inversely to the price of oil, and the higher oil goes above $100/bbl, the lower the market will go in the short term. Importantly, oil above $100/bbl isn’t automatically a bearish game-changer, but it is a clear headwind in the near term, and the sooner oil can decline back towards $80/bbl or lower, the better for this market.
Headwind 2: Private credit concerns. Indicator: Baa Credit Spreads. Private credit concerns continued to rise last week as more firms limited redemptions and large brokerages such as JPMorgan took action, writing down some software loans, while Morgan Stanley halted redemptions at a flagship private credit fund. Reflecting this increased stress, the Baa Credit spread has now risen to the highest level since May 2025. However, it remains below the 2.0% level that would imply escalating concerns (which remains an important level to watch). This may seem very technical for some, but it is one indicator we look at to determine risk levels.
Headwind 3: AI Anxiety. Indicator to Watch: IGV (iShares Expanded Tech-Software Sector ETF). AI anxiety has “paused” for the past few weeks as the other two headwinds have stolen the spotlight, while earnings from some important tech companies (ORCL, AVGO, and ADBE) were better than feared. However, the two underlying concerns with AI, namely that 1) Hundreds of billions in capex won’t have a strong ROI and 2) that AI may eliminate entire important sectors (e.g., software), haven’t been reduced. The key ETF to monitor this risk is IGV, and it has bounced solidly from the late-February lows. However, if that low is broken (just below $77.00/share), that will be a new, negative signal on the markets.
Bottom line, this market is facing elevated risks, but none of these headwinds are bearish gamechangers. In fact, each of them (especially the war) could be removed any day and cause a sharp rebound. However, if one or more of these risks becomes a bearish game-changer, that will require more defensive positioning and moves to protect gains. As such, we will tell you very clearly if that happens, but we are not there yet. In the meantime, we expect more volatility, and we continue to encourage movement to less-volatile positioning. Our current portfolio is well-positioned to weather any storm this year. We will continue to stay moderately conservative.
Source: Sevens Report 3/16/26