Weekly Market Update

Despite persistent chatter about cracks in the credit markets, the data tells a steadier story. Underwriting standards are notably cleaner than in the years preceding the global financial crisis (GFC); today’s environment reflects prudent risk management and healthy balance sheets rather than excesses. Current loan-to-value ratios in Private Credit are close to half the leverage of that in the period leading into the GFC.

Q3 earnings calls showed limited evidence of systemic stress. While isolated “bad actors” always exist, the overall tone from lenders and asset managers remains constructive. Both BlackRock and Blackstone highlighted strong credit performance across portfolios, underscoring that high-quality borrowing continues to dominate. Additionally, Citi Credit Strategy sees an expanding credit cycle supported by rate cuts and solid fundamentals.

Bottom line: This isn’t 2008 or 2020. The recent correction in the share prices of alternative asset managers has been orderly. Credit remains an income cornerstone in portfolios, and we remain anchored to up-in-quality exposures. We believe that today's rich valuations in lower quality credit may not adequately compensate investors for risk.

U.S. tech companies have maintained or reduced their headcounts over the last two years even as output and profitability rise. Jensen Huang, President and CEO of NVIDIA, recently highlighted that every NVIDIA employee now has their own AI agent. United Airlines expects another 4% workforce reduction next year, driven by AI efficiency gains. And at insurer Marsh McLennan, GenAI tools are handling over two million queries a month.¹ According to a study by Stanford, the recent rise in 22-25-year-olds reflects the difficult job market for new graduates as companies continue to invest in AI over labor.² We see this spending continuing, confirmed by the CapEx trends within Tech and Communication Services (Figure 1).

This wave of productivity improvement is widening the gap between the U.S. and the rest of the G7. Meanwhile, Japan’s new government looks poised to turbocharge automation and investment in robotics to offset labor shortages — a structural play we are watching closely.

Bottom line: Each great tech revolution, from electrification to the internet, has followed the same arc: heavy capital expenditures, infrastructure buildout, and then a productivity payoff. The current AI cycle fits that pattern and is entering its payoff phase, in our view. Adoption is accelerating faster than in prior cycles, and the resulting productivity gains remain significant — reinforcing our continued exposure to AI-linked high quality secular growers.

China's housing market and consumer activity remain anemic, weighing on overall economic activity. Yet the growth in technology and innovation sectors are driving equity markets higher, aligning with Beijing's long-term goals of self-reliance and digital advancement.

Over 60% of the MSCI China Index is exposed to technology — via Consumer Discretionary (30%), Communication Services (23%), and Technology (8%). These sectors are posting the strongest earnings revisions ratios in the region, particularly relative to real economy sectors that are impacted by deflation and overcapacity.

Despite recent volatility, we believe that gold will continue to serve as an important portfolio ballast. The recent pullback in gold prices is consistent with a seasonally weaker October and follows an exceptionally strong move in the first nine months of 2025. There are several strategic supports for gold over the medium terms — including central bank accumulation amid a shift away from dollars, and ongoing concerns around growing fiscal deficits.

Bottom line: In addition to high quality U.S. assets, we are constructive on both Chinese equities for growth and gold as a potential diversifier. Recent volatility in gold reflected technical trading dynamics, not a change in fundamentals. China may also offer attractive regional diversification as the AI buildout gains steam despite ongoing macroeconomic weakness.

What does this mean for investors:

Beneath the noise of headlines, credit markets remain stable, large-cap companies continue to deliver productivity gains through AI and automation, and global diversification themes around China and Gold are shaping the potential opportunity set for portfolios. We continue to emphasize quality, discipline, and patience as key differentiators in the current phase of the cycle.