Giorgio Caputo examines the latest shifts in equity and fixed income markets, Federal Reserve signaling, and what the current macro environment means for alternative allocations heading into Q2 2026.
From the original report
Selected passages from the original publication. Historical observations reflect the report's publication date, not current market advice.
1) Ouch! – the so-called “SaaSpocalypse” continued into February with frequent news of new AI co-worker/agent capability from LLM providers such as Alphabet, OpenAI and Anthropic that could undermine software applications by either (i) replacing them directly, (ii) making code generation so easy that competitors proliferate, or (iii) eroding per-seat licensing models as AI agents interact with programs without occupying a “seat.” This has spilled over into business development companies that lent heavily to software firms with private “BDCs” seeing outflows and public BDCs trading at discounts to appraised values.
2) Eeek! – A viral report by a firm called Citrini Research hypothesized a 2028 “Global Intelligence Crisis” in which AI-driven layoffs trigger a doom loop that collapses the consumption. The piece further fueled the tech selloff and spilled over into industries ranging from financial firms to delivery services and consumer names, on fears that mass white-collar unemployment could undermine the U.S.’s consumer-driven economy.
3) Hmmm… – But what does the data say? January: +130K jobs, 4.3% unemployment. Software-engineer postings are up 11% YoY. The equal-weight S&P 500 hit an all-time high on Feb. 26. Strip away the AI scare and the economy looks quite normal.
Broadening Beyond Borders – While US tech shares have stumbled, international markets have begun the year promisingly, building on last year’s strong returns. With the MSCI World ex-US up ~8% YTD versus a roughly flat S&P 500, global diversification is continuing to pay off after almost a decade of disappointment.
The Duration Question – January Core PPI inflation surprised higher (+0.8% vs. 0.3% expected), though the increase was due to often-volatile distribution margins. We are, however, also finding inflation within the AI supply chain, as can be seen notably in the chart of memory prices (which have more than sextupled!). Productivity gains from AI should be deflationary, especially if the employment weakens. Balanced portfolios face the question of whether to extend duration here as a hedge against the AI-crisis tail risk or stay short should inflation rise.
For educational purposes only; not individualized investment, tax, or legal advice. Investing involves risk, including loss of principal.
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