iM Global Partner’s Market Slides

🔷- The conflict in Iran has introduced a number of unknown variables into the investment outlook. Thus far, markets have largely looked through the clash; however, with each passing day, the impact on the global economy becomes greater. Energy prices are rising quickly, with Asian and European economies having more exposure than the U.S.

🔷- Oil and gas fields are not like faucets – they cannot just be turned off and on. Once they are shut in, there are engineering and geological risks that don’t guarantee their resumption at previous production levels. Restarting these fields will take weeks to months, plus another 3-4 weeks for tankers to transit through the Persian Gulf and Asia. The longer the Strait of Hormuz remains closed, the worse it will be for the global economy.

🔷-  After delivering another rate cut last December, the Fed held rates steady at their two meetings in 2026. The Fed funds rate remains at 3.5%-3.75%. Since the onset of the war, the market has priced out any additional rate cuts this year. The implied number of cuts for 2026 was about two cuts at the end of February; however, the market is now pricing a Fed that will hold rates at current levels.

Morningstar

🔷-  Real GDP growth slowed to 0.7% in the 4th quarter of 2025. The federal shutdown subtracted around 1% point from that figure, but growth would have still been mediocre at 1.7%. GDP growth will be pushed up in the first quarter of 2026 as government spending snaps back after the shutdown. In the second quarter, growth should weaken as the oil price spike weighs on consumer spending.

🔷-  Current homebuyers seem to be mostly placated by the hope of refinancing on an eventual drop in mortgage rates. Mortgage rates will have to fall drastically to justify those hopes – and justify very elevated home prices. If the Fed does not drive down mortgage rates as we expect (with the 30-year mortgage rate to average 5.5% in 2027 and 5.0% by 2029 and after), then another leg down for housing prices and activity is very likely, in our view. Even with monetary easing, we expect tepid home price growth averaging around 1.8% over 2026-2029. That will combine with lower mortgage rates to ease housing affordability and push price/rent ratios closer to pre-pandemic levels.

🔷-  Market expectations for the federal funds rate have shifted upward in light of the inflationary impact from the US-Iran conflict, and we think that’s appropriate for the near term. In line with the futures market, we expect no federal funds rate cuts in 2026. Starting in 2027, however, we expect receding inflation, along with a slight slowing of growth and creeping up of unemployment, to push the Fed back to cutting rates. We project the federal funds rate to fall from 3.5%-3.75% currently to 2.75%-3.00 at the end of 2027 (three cuts) and 2.25%-2.50% at the end of 2028 (two cuts).

Schwab Market Perspective

🔷-  The economy remains in a low-hiring, low-firing environment. Job cut announcements picked up sharply at the beginning of the year but have eased recently. Small business capital spending remains weak, likely reflecting massive uncertainty related to trade policy. Retail sales have started the year on a weak footing as consumer confidence remains in a downtrend and near its post-pandemic lows. In aggregate, household debt dynamics are not flashing a warning sign, given that debt service ratios remain at modest levels. However, serious delinquency rates have picked up sharply this cycle, particularly for credit cards and student loans.

🔷- As a percentage of nominal GDP, government spending remains elevated relative to history. The current share is consistent with slower growth, investment, and job creation. The fiscal impulse remains strong, evidenced by the fact that the federal budget deficit as a percent of GDP is stretched relative to history. Fiscal stimulus from the One Big Beautiful Bill Act might be dampened if energy prices remain higher for longer. The U.S. dollar has been softer over the past year, but has seen a resurgence of late, given that the war in Iran has pushed investors to seek it out as a haven. Should the conflict persist, the dollar might find further support from here, helping reverse some of its weakness driven by tariffs last year.

🔷-  Of course, the ultimate wild card moving forward is how the war in Iran impacts the trajectory of growth. So far, layoff activity has been muted, and consumer spending remains solid, but a sharper or more persistent increase in energy prices has the potential to weigh on growth, especially if the labor market weakens.

What GFP is saying with info from the above:

🔷-  We believe the Iran conflict is another headwind that an already weary household is now having to deal with, higher gas prices, while also impacting the net oil importers around the world. The concern over inflation has put the Fed on pause, which doesn’t help the math for the affordability equation for housing.

🔷-   The media in recent weeks has rightly paid a lot of attention to signs of stress within private credit and heightened redemption requests from semi-liquid funds devoted to the asset class. Since these funds intentionally limit how much money each individual investor receives back is a function of how much other investors asked for in aggregate during a given redemption window. When investors ask for more money back than a semiliquid fund is offering, the redemptions will be prorated. Until the advent of the semiliquid funds, private credit was mostly held in drawdown funds and listed business development companies, neither of which must meet periodic redemptions, and so this is the first true outflow cycle for these products. We still strongly believe in our funds and this asset class and will continue to monitor. Interestingly, by the end of the 1st quarter, with the equity markets having turned negative due to the war and bonds also down slightly with rates rising post-war, our private credit funds have held steady and helped portfolio performance.