Opportunities Beneath The Surface

Market Crosscurrents: Opportunity Beneath the Surface

As of the market open on March 30, the NASDAQ has entered correction territory from its October highs, reflecting a period of heightened uncertainty across equity markets. After an extended run driven by enthusiasm around artificial intelligence and mega-cap leadership, investor sentiment has begun to shift. While this pullback may appear concerning on the surface, we view it less as a signal of structural breakdown and more as an opportunity emerging beneath the surface.

Private Markets

A key area of focus for us remains credit markets, particularly private credit. Despite having no direct exposure to private credit, this is an area we are watching carefully given its growing role in corporate financing and its potential to act as an early indicator of broader credit stress. Despite broader volatility in equities, cracks have begun to appear in parts of the market, but private credit fundamentals have not shown meaningful signs of deterioration. Default rates remain contained, underwriting standards—while tested—have not collapsed, and liquidity conditions remain manageable.

We are paying close attention to this segment because private credit has increasingly filled the gap left by traditional banks, particularly in leveraged lending and middle-market financing. Should conditions tighten—whether through rising defaults, reduced liquidity, or repricing of risk—it could have ripple effects across the broader economy and public markets. At this stage, however, those risks remain contained, and we do not anticipate systemic debt issues emerging in the near term. This stands in contrast to prior cycles, where credit stress often served as the catalyst for deeper market dislocations.

Artificial Intelligence Meets Market Dispersion

Within equities, dispersion is beginning to appear across the software sector, with some companies performing well while others lag behind. Many high-quality software companies continue to trade at significant discounts relative to their historical multiples. This repricing reflects both rising capital costs and skepticism around long-term growth assumptions in a rapidly evolving technological landscape. We believe the market is beginning to differentiate between companies that are effectively integrating artificial intelligence into their platforms and those that are not.

The distinction is critical. Firms that successfully embed AI into their core offerings—enhancing productivity, improving margins, and creating defensible competitive advantages—are likely to emerge stronger from this transition. Conversely, companies that rely heavily on subsidizing AI usage, particularly through costly token-based models without clear monetization pathways, may face increasing pressure. In many cases, these businesses are absorbing significant costs upfront without yet demonstrating sustainable returns, which could weigh on profitability and investor confidence over time.

Geopolitical Landscape

Geopolitical developments are also playing a role in shaping market expectations, particularly in energy. The ongoing conflict involving Iran has contributed to elevated oil prices and increased volatility. However, current expectations suggest that the conflict is unlikely to persist over an extended timeframe. Should tensions ease, we would anticipate a relatively swift normalization in energy markets, with oil prices potentially correcting back below the $90 per barrel range by the end of 2026. Such a move would alleviate inflationary pressures and could provide a supportive backdrop for both consumers and businesses.

Taken together, these dynamics highlight a market environment defined less by broad-based risk and more by targeted dislocation and opportunity. While headline indices may signal caution, the underlying landscape is far more nuanced. Credit markets remain stable, select equity sectors are becoming increasingly attractive, and macro pressures—while present—may prove transitory.

At NorthStar Capital, we remain focused on identifying these pockets of opportunity while maintaining a disciplined approach to risk management. Periods like this often reward investors who can look beyond short-term volatility and remain anchored in long-term fundamentals. As always, our priority is to position portfolios to navigate uncertainty while capturing the upside that emerges when markets stabilize.