Key Wealth Investment Brief

Key Takeaways:

Our “three disruptive forces” that we previously wrote about in our 2026 Market and Economic Outlook: Managing Wealth in an Age of Massive Disruption and Profound Change are still causing major disruptions (and creating opportunities, too). 

Last week, we noted that the war in Iran would last weeks (not days), stating that these attacks are different from those of June 2025. We also stated that Iran’s new leader and the scope of the war are key determinants of the outcome. This weekend, a new “hardline” leader was announced, and the war has escalated.

Last October (and again in February), we noted that artificial intelligence (AI) has entered a riskier phase. The war in Iran is overshadowing the AI narrative for now, yet we still believe that AI has the potential to unleash massive productivity and massive disruption. The timing of these dynamics is unknowable; diversification is strongly advised.

Private credit (which has been at the forefront of the democratization of private assets and AI) remains in the crosshairs, also giving rise to uncertainty and unknowable spillover effects. Some investors seem surprised over the lack of instant liquidity, yet illiquidity has always been a feature of alternative assets. Alternative managers now face a “narrative problem.” These achallenges don’t resolve quickly, but they can present potential outsized returns to investors who are patient and opportunistic. Due to structural opacity, volatility will likely persist, but we advise remaining disciplined and staying diversified.

Bottom line: Amidst these three forces of disruption and such immense uncertainty, we believe three strategies are warranted: 1) stay invested and avoid market timing; 2) focus on what you can control and compartmentalize what you can’t; and 3) harness volatility to strengthen portfolio diversification.

The war in Iran has escalated materially. President Trump has demanded “unconditional surrender,” while strikes on nonmilitary infrastructure could widen the war’s impact on Iranian civilians.

Over the weekend, Iran appointed Mojtaba Khamenei as the country’s new Supreme Leader. He is the 56-year-old son of former Supreme Leader Ali Khamenei and is likely to follow hardline ideologies. His formative years were spent fighting in the Iran/Iraq war; he has close ties to the military; and he lost his father, mother, wife, and son in recent attacks. President Trump called the appointment “unacceptable.”

Last week, oil prices rose more than 40% as the scope of the Iran conflict widened. Investors also moved into the safe haven of the U.S. dollar. The dollar index rose 1.3% versus the global currency basket on the week, while non-U.S. stock indices generally fell 7–10%. Since the start of the year, oil prices have risen more than 50%.

In overnight Sunday trading, oil prices spiked near $120 per barrel in thin trading before pulling back. By Monday’s opening bell, both West Texas Intermediate and Brent crude had stabilized just above $100.

The Strait of Hormuz is effectively closed due to the escalating conflict; very few ships are currently attempting passage. Approximately 20% of global oil demand and 20% of liquified natural gas (LNG) typically pass through the Strait daily, according to the U.S. Energy Information Administration (EIA).¹ The longer the Strait remains closed, the more pressure we will see on global energy markets.

Despite the shock of higher oil prices, a recession is not a foregone conclusion. Rallies of over 100% in oil prices tend to put severe pressure on the economy, if maintained for several quarters, according to data from Alpine Macro. A sustained rally well above $100 for several quarters could damage the economy, but would Trump tolerate such a move in a mid-term election year?

Despite high volatility in global stock markets, global bond markets have held up reasonably well. Spreads widened last week, but the move was orderly. Global bond markets are not showing signs of panic yet.

Bottom line – how to cope with extreme uncertainty.

On Wednesday, March 4, 2026, Key Wealth held a national client call with special guest Brian Portnoy. The discussion centered around factors that drive good financial decisions; the difference between chasing “more” and achieving true financial wellbeing; and how to find clarity when the world feels anything but clear.

Key Wealth National Call: Navigating Noise, Finding Meaning: A conversation with Brian Portnoy, PhD, CFA - Zoom (March 4, 2026)

The call replay link is above, and some of our own thoughts on these important themes are below.

Accept the fact that uncertainty is always prevalent. Admitting you don’t know what the future holds (no one does) can be somewhat liberating, as it forces you to focus more of your time on what truly matters.

Incorporate a wide range of outcomes into your plan; focus on probabilities not predictions.

Incorporate a “rules-based” approach into your plan: “If stocks drop 10%, I will buy ___%. If stocks drop another 10%, I will buy ___%."

Extend your time horizon and diversify across various scenarios. This means avoiding trying to “time the market” and diversifying by geography, by size, by sector, and by security.

Focus on what’s important and what you can control. You can’t control the future, but you can control your risk profile, time horizon, asset allocation, asset location, investment expenses, and, most importantly, your reaction.

Equity Takeaways:

Stocks fell in early Monday trading. The S&P 500 fell approximately 1.5%, to 6642. The tech-heavy Nasdaq fell approximately 1.3%, while small caps fell approximately 2.9%. Non-U.S. shares remained under pressure, generally falling 1.5% to 2.5%.

The S&P 500 had been in a trading range since last October. The market finally broke lower last week and opened lower again on Monday. The 200-day moving average (currently about 6582) is now an important support level.

Signs of panic and stress are increasing. The spread between spot implied volatility (VIX) and the 3-month VIX future inverted last Friday. An inverted volatility curve tends to indicate panic, and in the past it has marked tradeable bottoms. This indicator is one of our favorite tactical indicators in times of panic.

Volatility has been trending higher all year. The VIX spiked to approximately 29.0 last week, versus its long-term average of 19.0. In early Monday trading, the VIX was approximately 31.4. Even in the low 30s, the VIX remains below levels that have historically generated outsized positive returns.

Fixed Income Takeaways:

Treasury yields rose last week as investors feared the inflationary impact of rising oil prices: 2-year Treasury yields rose 19 basis points (bps), and 10-year Treasury yields rose 20 bps during the week.

In early Monday trading, yields were 2–3 basis points higher across the curve. Overall, 2-year Treasuries were yielding 3.59%, 5-year Treasuries 3.75%, 10-year Treasuries 4.17%, and 30-year Treasuries 4.79%.

In recent weeks, the 2-year / 10-year Treasury curve has flattened as investors have begun to price fewer Federal Reserve (Fed) rate cuts for the full year 2026. For example, 2-year Treasury yields have risen relative to 10-year yields; 2-year Treasury yields are more sensitive to rate cut expectations than 10-year yields.

Credit spreads reached their narrowest levels in late January and have been drifting wider ever since. The move has been orderly. The spread on the investment-grade (IG) credit index reached 84 bps last week, about 12 bps higher than the January lows. The spread on the high-yield index was 293 bps last week, about 40 bps higher since late January.

Key Takeaways:

Last week, our three “forces of disruption” that we previously wrote about in our 2026 Market and Economic Outlook: Managing Wealth in an Age of Massive Disruption and Profound Change, all reached a boil:

1. President Trump’s decision to attack Iran is another manifestation of rising nationalism giving rise to further uncertainty — and potentially higher inflation and higher deficits.
2. A negative article regarding the adoption of artificial intelligence (AI) was published, highlighting potentially ominous consequences triggered by AI disruption and also giving rise to further uncertainty.
3. Private credit (which has been at the forefront of the democratization of private assets and AI) remains in the crosshairs, also giving rise to uncertainty and unknowable spillover effects.

Bottom line: Amidst these three forces of disruption and such immense uncertainty, we believe three strategies are warranted: 1) stay invested and avoid market timing; 2) focus on what you can control and compartmentalize what you can’t; and 3) harness volatility to strengthen portfolio diversification.

Iran: what we know/think about Trump’s decision to attack Iran.

President Trump’s actions are seemingly motivated by regime change, and he has said that “airstrikes will continue… as long as necessary.”² But mid-term elections could cause him to pivot. Still, this is a different war from last year given a likely power vacuum, at least in the near-term.

The deaths of Iran’s supreme leader Khamenei and numerous other senior military officials have been confirmed. A temporary three-person constitutional council will oversee the succession process. Whoever is the next leader could play a pivotal role in the duration and the scope of this conflict.

Iran has returned fire on Israel and across the Middle East, including U.S.-linked installations. Air travel throughout the Middle East has been disrupted; traffic in/out of the Strait of Hormuz is being carefully monitored and will most likely also be disrupted.

The Strait of Hormuz is the world’s most important oil route, moving approximately 20% of global oil demand and approximately 20% of liquified natural gas (LNG), according to the U.S. Energy Information Administration (EIA). Iran’s abilities to completely close the Strait may be limited, but other tactics could cause complications.

The U.S. has become significantly more energy independent over time; however, economists estimate that a 10% rise in gasoline prices would cause a temporary increase in headline Personal Consumption Expenditures (PCE) inflation of 0.2%, according to the Federal Reserve Bank of Dallas. Such an impact would likely fade over time; bigger impacts are likely to be felt in China/Asia and Europe. The U.S. is now a net energy exporter, according to the EIA (unlike the 1970s).

Our base case: disruptions will be relatively short-lived (weeks versus months), but downside risks do exist.

AI’s impact on the economy is growing.

In Q4:2025, almost 1% of GDP growth was linked to information processing equipment and software, according to Apollo. For an economy that grew between 2.0% and 2.5%, this is a significant contribution that continues to increase.

Initial weekly unemployment claims have remained in the low 200,000 range, suggesting a stable labor market. Aside from the occasional one-off event, we have not seen a significant pickup in layoffs yet. Continuing unemployment claims have also moderated somewhat in recent weeks, suggesting that AI has not disrupted the labor market significantly (yet).

A notable investment firm (and short seller) published a thought experiment last week set from the perspective of an investor several years in the future. The piece envisioned a future where AI has replaced many human workers, causing a spike in unemployment and a drop in the stock market and home prices.

We don’t ascribe to this bearish view. Optimism typically prevails, and humans are very resourceful. We continue to believe that AI adopters may be well positioned relative to AI enablers. The type of jobs come and go, but the number of jobs still grows.

Bottom line – how to invest now.

Investors should avoid making abrupt changes and instead should harness volatility to strengthen portfolio diversification. For investors who remain underweight non-U.S. stocks, adding on weakness is recommended.

We believe non-U.S. stocks should comprise approximately 30% of an investor’s total equity allocation. Real assets (including gold) and high-quality fixed income are also good options to improve diversification.

Equity Takeaways:

Stocks fell in early Monday trading. The S&P 500 fell approximately 0.7%, to 6832. The tech-heavy Nasdaq also fell approximately 0.7%, while small caps were down approximately 1.2%. International shares were generally 2–3% lower. Crude oil prices rose 7–8%. Gold rallied approximately 2.0%, and the U.S. dollar also rose versus the global currency basket.

The S&P 500 remained stalled just below 7000 last week. Strong earnings have not been enough to break the stock market out to the upside. Even prior to news of the U.S. attack on Iran, the stock market was looking more vulnerable to a pullback, with declining momentum. Only approximately 12% of S&P 500 index constituents were trading at a new 20-day high last week, a low number.

The 6550–6650 range is an important area of support for the S&P 500, containing both the upward-sloping 200-day moving average and the 65-day low. We believe support will hold in the coming weeks. We don’t see a sharp correction as likely.

The software sector has been trying to rally at important support near the 2025 lows. Momentum readings for this sector remain extremely depressed. We believe the software sector likely has further downside before a true bottom is formed.

Gold’s recent price action looks very constructive. The sharp pullback in early February has been met with strong buying demand, and prices are higher again Monday morning on geopolitical concerns. A test of the all-time high around $5,500 per ounce appears likely.

Fixed-Income Takeaways:

Treasury yields moved lower last week amidst falling risk appetite; investors moved towards the safety of Treasuries. Last week, 10-year Treasury yields fell 15 basis points (bps) to 3.94%, down approximately 30 bps for the month. February 2026 was the best month for Treasuries since February 2025.

In early Monday trading, Treasury yields were rising 5–7 bps across the curve. Overall, 2-year Treasuries were yielding 3.45%, 5-year Treasuries 3.58%, 10-year Treasuries 4.01%, and 30-year Treasuries 4.67%. Rising oil prices could push inflation higher, and higher inflation is bad for bonds.

Credit spreads widened last week amidst falling Treasury yields. Concerns about private credit are slowly beginning to spill over into public markets. Investment-grade (IG) credit spreads widened approximately 6 bps last week, to 83 bps over Treasuries. Spreads remain tight on an absolute basis, suggesting that investors do not expect widespread credit stress.

Key Takeaways:

After the Supreme Court’s ruling last week, peak tariffs might have passed, but uncertainty is poised to persist.

Last week, the Supreme Court ruled 6-3 that President Trump exceeded his authority when he used a 1977 law to impose tariffs in 2025. The law, known as IEEPA (International Emergency Economic Powers Act), allows the U.S. President to take actions to regulate the economy during emergencies. The Court stated that the President lacked clear authorization from Congress to impose tariffs under IEEPA: “The Framers recognized the unique importance of this power. And Congress alone [has] access to the pockets of the people.”³

Tariffs, however, won’t be going away and instead will likely be issued under other statutes. Refunds from tariffs implemented in 2025 may eventually occur, but it is likely that the refund process will be tied up in litigation for months or years. Uncertainty around tariff policy has returned; however, we don’t believe the Supreme Court ruling will have a major macro-economic impact on the economy. For longer-term implications of the ruling, watch both the long end of the yield curve and the U.S. dollar for signals on inflation and trade policy, respectively.

The shift in stock market leadership gained momentum last week, which seems to have room to run.

Cyclical sectors such as energy, materials, and industrials continue to lead the market in 2026. Trailing the pack are the consumer discretionary, technology, and financial sectors. Energy shares have risen more than 22% year-to-date (YTD), while financials have fallen more than 4% YTD. The spread between sectors in such a short period of time has been dramatic.

We think this change in leadership could continue. Investors should remain underweight U.S. mega-cap growth while maintaining exposure to artificial intelligence (AI) adopters, small caps, non-U.S. assets, real assets, and high-quality bonds.

Private credit is in the crosshairs again as new cracks have surfaced.

Last week, a large private credit investment firm halted redemptions in a fund catering to retail investors. This news caused additional volatility within Business Development Companies (BDCs) and private credit funds.

We don’t think last week’s news is a harbinger for the entire private credit space. Further strains are likely, but investors should maintain allocations to disciplined underwriters and fully understand underlying liquidity provisions. Notably, broad credit stress is not apparent (yet); opportunities may emerge for opportunistic investors, but homework is required.

We believe the private credit sector is sound, despite some softness. The recommended funds on our platform provide diversified, resilient portfolios with limited position-level stress. We view private credit as a long-term holding and don’t recommend attempting to move in and out of this asset class.

Bottom line – reiterating our current thinking about artificial intelligence (AI).

AI spending has entered a riskier phase (something we flagged last October). At the same time, AI is unleashing massive disruption, highlighting the importance of diversification and building resilient portfolios (something we discussed in our 2026 Outlook).

1. AI spending is booming and accelerating. Furthermore, many companies feel compelled to keep spending. As Alphabet CEO Sundar Pichai stated, “The risk of underinvesting is dramatically greater than the risk of overinvesting.”⁴
2. Because of massive AI spending, investors will be subjected to greater risks. AI spending will divert spending from share buybacks and other projects, exposing investors to greater risks, especially if such spending fails to generate positive returns. In addition, AI spending is increasingly becoming financed through debt (versus cash flow), introducing additional risks.
3. AI adoption is booming and accelerating. At the same time, AI is beginning to unleash massive disruption – a necessary evil to justify massive AI-related spending – but wreaking havoc on potentially large sectors (and employers) of the economy.

Change is accelerating, and with it comes changes to the ranking of winners and losers. The risks are seemingly the highest for those companies enabling AI, as it’s unknown if this massive amount of spending will pay off. Conversely, those companies successfully adopting AI may enjoy enhanced productivity (and improved profitability) and may be comparatively less risky.

Underweight U.S. mega-cap growth; maintain exposure to AI adopters, small-caps, non-U.S. assets, real assets, and high-quality bonds. Increase diversification as certainty is disappearing.

Equity Takeaways:

Stocks dipped in early Monday trading. The S&P 500 fell approximately 0.4%, to 6882. The tech-heavy Nasdaq fell approximately 0.5%, while small caps fell approximately 1.4%. International shares were generally lower.

The S&P 500 has been rangebound for the better part of four months. Underlying stock volatility has been high even as the Index’s return has seemed quiet on the surface. The longer the market remains stalled, the greater the chance of a meaningful pullback. With approximately 40% of the S&P 500 in mega-cap technology names, it has been difficult for the market to move higher with technology stocks stagnating.

Breadth for the S&P 500 is narrowing. The percentage of issues trading above their 20-day moving averages peaked in mid-2025 at more than 80%. This indicator was at approximately 61% last week, even as the S&P 500 Equal-Weight Index moved to new all-time highs.

The energy, materials, and industrial sectors have all rallied sharply since October 2025. Healthcare and consumer staples (traditional defensive sectors) have also rallied sharply in that timeframe. Energy, materials, and industrials can all be considered “real assets,” while healthcare and consumer staples will have demand in any type of economy. Investors are gravitating towards these types of stories amidst the disruption of AI, and we think this trend could continue.

Software stocks have sold off sharply in recent months and have reached significant oversold levels near the 2025 lows. The sector has failed to bounce despite being oversold, implying that more downside remains. We would not attempt to catch the falling knife that is software.

Fixed Income Takeaways:

Treasury yields moved slightly higher last week. Early in the week, 10-year Treasury yields hit a two-month low, approaching 4.00%, before moving higher later in the week. A “risk on” tone pervaded throughout the week, reducing demand for safe haven assets.

In early Monday trading, yields were several basis points lower across the curve. Overall, 2-year Treasuries were yielding 3.47%, 5-year Treasuries 3.62%, 10-year Treasuries 4.05%, and 30-year Treasuries 4.71%.

Despite last week’s tariff news, credit spreads were resilient, tightening slightly within both investment grade (IG) and high-yield issues. Demand for high-quality credit remains extremely strong.

Pockets of stress exist within credit, even as spreads remain very tight at the index level. Technology / software bonds have come under pressure amidst the recent stock market volatility in those sectors.

Key Takeaways:

The U.S. labor market is holding on for now.

January nonfarm payroll data was released last week and showed a gain of 130,000 jobs vs. expectations for 70,000. November and December monthly data was revised slightly lower, while 2025 as a whole saw significant negative annual benchmark revisions. The unemployment rate ticked down to 4.3%, from 4.4%. The labor market appears to be weakening but is not falling apart.

Something changed in the U.S. economy in the middle of 2024. Job growth has slowed markedly, possibly due to a combination of AI-related productivity increases and lower immigration. Some estimates suggest that just 15,000 – 20,000 new jobs per month may keep the unemployment rate steady. In past years, 100,000 – 200,000 new monthly jobs were needed to keep unemployment from rising.

If the labor market has undergone a structural change, we could see major implications for the economy and the dual mandate at the Federal Reserve (Fed). Lower structural job growth may reduce wage growth and put downward pressure on inflation, all else equal.

Diversification has paid in 2026. International stocks, small caps, and bonds have all outperformed large cap U.S. stocks year-to-date (YTD).

We have not heard of significant sales of U.S. stocks by large institutional investors. Instead, marginal dollars seem to be pouring into non-U.S. stocks, small caps, precious metals, etc. Investment flows into U.S. assets remain robust, according to data from Bloomberg.

The rotation underneath the surface of the market seems to have legs and may continue throughout the balance of 2026. The S&P 500 is concentrated in mega-cap technology names, and the S&P 500 index may continue underperforming unless technology shares rebound.

Despite the recent rally, international stocks remain relatively cheap on a price/earnings (P/E) basis compared to the S&P 500 index. International stocks had a strong 2025 relative to U.S. stocks but have lagged for the bulk of the prior 10–15 years. It is not too late to diversify.

Bottom line – how to invest now.

Change is accelerating, and with it comes changes to the ranking of AI winners and losers. The risks are seemingly the highest for those companies enabling AI. It is unknown if the massive amount of capital spending by AI enablers will pay off. Conversely, those companies successfully adopting AI may enjoy enhanced productivity (and improved profitability) and may be comparatively less risky.

Discipline and diversification are of the utmost importance in this environment, as none of this can be assured. We continue to favor “the forgotten 493” of the S&P 500, international markets, real assets, and utilizing “New Tools” where appropriate.

Equity Takeaways:

Stocks fell in early Tuesday trading after the Monday holiday. The S&P 500 fell about 0.7%, to 6790. The tech-heavy Nasdaq fell about 1%, while small caps dipped about 0.5%. International shares were generally lower.

The current environment is strange relative to history. Traditional cyclical sectors such as energy, materials, and industrials have led the market in 2026. At the same time, traditional defensives such as staples and utilities have also done very well in 2026. The technology and financial sectors have both lagged.

On a style basis, value stocks have significantly outperformed growth stocks YTD. Capital-heavy businesses and so-called HALO stocks (hard assets, low obsolescence) have done very well as investors believe these types of businesses may be insulated from the impact of AI.

On the other hand, software stocks and capital-light businesses have suffered, as investors fear the impact AI may have on these businesses. In addition, as we’ve noted in the past, AI enablers are underperforming AI adopters. Investors are very nervous about the large capital expenditures required to build out AI infrastructure.

Other strong performers YTD include dividend-paying stocks, which tend to be tilted towards value-oriented, quality companies. Lower interest rates also benefit dividend-paying stocks. Finally, dividend-paying stocks tilt smaller than the average market capitalization in the S&P 500 index, as many large technology companies have very low dividend yields. We noted the attractiveness of dividend-paying stocks in late 2025.

In a market with very high dispersion, active management can add value relative to index-linked products. The current opportunity set is rich for active managers.

Fixed-Income Takeaways:

A stronger-than-expected labor market report initially pushed yields higher last week, but by the end of the week yields had reversed lower on risk aversion and lower-than-expected inflation data. 2-year Treasury yields fell about 8 basis points (bps) last week, while 10-year Treasury yields fell 15 bps last week.

In early Tuesday trading, yields were drifting 1–2 bps across the curve. 2-year Treasuries were yielding 3.42%, 5-year Treasuries 3.61%, 10-year Treasuries 4.05%, and 30-year Treasuries 4.68%.

10-year Treasury yields are nearing their lowest levels since Thanksgiving. The softer inflation data from last week now has market participants expecting as many as three rate cuts of 25 basis points each in calendar year 2026 (up from two cuts). The current fed funds rate is 3.50% to 3.75%; it is expected to finish 2026 at about 3.00%.

Credit spreads widened slightly last week amidst the decline in Treasury yields and mild risk off tone. Technology-leveraged loans are under pressure as investors worry about the impact of AI on the software & services sector.

Both investment-grade (IG) and high-yield corporate bonds have limited exposure to the software and services sector, both in the 4–5% range according to data from Bloomberg. The leveraged loan sector, on the other hand, has about 17% exposure to software.