Introduction
After a strong start to the year, the Iran War injected significant volatility into markets for the final month of the 1st quarter. The fundamental backdrop for markets remains positive, but we remain aware of the lasting implications caused by higher oil prices and ongoing disruptions in the Persian Gulf. In this edition of Beck Capital Management’s quarterly market view, we will cover:
- Iran: What’s Happening Now and the Lasting Implications for Markets
- Federal Reserve Update: How Rate Cut Calculus Has Changed
- AI: The Capex Super-Cycle Continues amid Heightened Anxiety
- Private Credit: Analyzing AI’s Implications for the Asset Class
- Market Concentration: Evaluating the S&P 500 in 2026
We hope you enjoy our quarterly market outlook.
Iran
As the conflict in Iran enters its sixth week, it has had mixed impacts on the global economy. Typically, geopolitics will make headlines but have a relatively small effect on the US stock market; this dynamic shifts entirely once US military assets are involved and a fifth of global oil supplies are affected.
So far, only a handful of oil shipments have been able to transit the Strait of Hormuz, which is typically the source of up to a quarter of global oil supplies. Iraq has ceased production as storage capacity has been reached, without a high-throughput route to market. Saudi Arabia has managed to reroute a record 7 mmbpd through its East-West pipeline, which connects oil terminals in the Persian Gulf to the Red Sea, but this is still below the 8+ mmbpd (millions of barrels per day) it typically exports to global markets. This oil is still subject to the Houthis or Yemen interfering with Red Sea traffic, which would force transit via smaller, SUEZMAX-class tankers, north through the Suez Canal.
All told, the region is delivering only about 10 mmbpd, which is 10-15 mmbpd below typical production1. Perhaps more important than the temporary dislocation of oil, a few major pieces of oil infrastructure have been damaged in the conflict. As we saw when Freeport’s facility was damaged by a fire in 2022 (which took 8 months to restart operations and about 3 years to reach full production again), repairing this infrastructure can be a lengthy process. In Qatar alone, two LNG “trains” or production lines were damaged, potentially removing up to 17% of Qatari LNG production for several years.
In the short term, this has pushed global energy prices sharply higher, with Brent Crude trading above $100 per barrel since mid-March. If this continues:
- For weeks: there will be increased energy prices, but minimal lasting impact on inflation or global GDP.
- For months: tangible changes to global GDP, lasting effects on inflation (immediately affecting headline metrics, but with energy-driven inflation flowing through other areas as well), lasting effects on European and Asian gas stores for this winter, and disruptions within semiconductor manufacturing. About a third of global Helium supply is exported through the Strait of Hormuz and is an integral input in the manufacture of silicon wafers and semiconductors.
We expect the US and Iran to reach some kind of accord in the coming weeks, with little appetite for a prolonged conflict on either side. There will be sticking points in negotiations, likely to be centered around Iran’s nuclear program, so while we expect a reduction in violence, we don’t expect the Iran conflict to fall out of the headlines overnight.
What War Means for our Portfolios
First and foremost, we have avoided taking any drastic measures amidst this conflict. There will be some lasting impacts on the energy sector complex moving forward, but the general move in equities has been quite binary: The onset of bad news triggers a selling reaction, while the revelation of good news triggers buying. We haven’t made a major move to cash because we believe the end of this conflict is fairly imminent, as mentioned above. Once the Strait of Hormuz is reopened, the general market will return to investment fundamentals, and we are likely to see a resumption in “risk on” buying activity.
In recent days, we have already witnessed improved market sentiment as the U.S. administration moves to conclude activities in the Persian Gulf. Our portfolio consists of few companies that are truly (negatively) exposed to oil markets, and we can chalk up March’s market move primarily to negative sentiment. We are not traders; we are long-term investors, and when the fundamentals don’t change, we don’t shift our entire strategy. Over-trading markets typically leads to adverse results, and trying to time these market swings is often a fool’s errand. If anything, we have taken advantage of short-term discounts to buy stocks at attractive valuations, and we expect, over the long term, for investment fundamentals to prevail.
Long-Term Implications of the Iran Conflict
LNG and Natural Gas Exposure
As mentioned, there are certainly some longer-term investment implications for this war. Notably, liquid natural gas (LNG) facilities in the Persian Gulf have been disrupted, creating a multi-year opportunity for U.S. natural gas producers, LNG export terminals, and LNG shippers. Our portfolios were already positioned to benefit from increased natural gas usage for power generation and the proliferation of LNG export traffic, but we have leaned further into this exposure as we expect the U.S. to ramp up natural gas exports to replace capacity lost in the Middle East. LNG facilities are complex and require massive physical infrastructure and capital to rebuild. Rebuilding the capacity lost in the Middle East will take years, which will benefit U.S.-based producers.
Aerospace & Defense Companies
With the rise of geopolitical tensions in recent years, we had already incorporated aerospace & defense exposure into portfolios, but this conflict has further underscored the need for global defense spending. We believe companies in the defense industry will benefit from a multi-year need for countries to rebuild munitions and develop advanced combat and defense weaponry to properly defend sovereignty. Already, Europe has stepped up its defense spending, the U.S. is passing budgets to increase military spending, and Gulf nations in the Middle East are moving to better protect their own assets. This should lead to greater revenue and earnings growth for companies supplying weaponry and defense systems.
A Note on the Fed:
Despite the recent oil shock, the Fed has remained steady in its expectations for the year. So far, officials have largely been dismissive of changing policy in response to what they see as short-term price dislocations.
Powell has been consistent in “looking through” tariff-induced inflation, citing in recent months his belief that “inflation ex-tariffs is nearly at the Fed’s target”. The increase in oil price will be a second inflationary pressure to look through, which may muddy the waters for the Fed’s calculus, but should be treated the same way – as a temporary price increase that isn’t indicative of the long-run trends.
At the March 18th FOMC meeting, the Fed released an updated Summary of Economic Projections (SEP), in which participants noted uncertainty about the future. They increased expectations for GDP and inflation, while leaving the “dot plot” indicating one expected cut in 2026. At Beck Capital Management, we’re still expecting 1-2 rate cuts, likely towards the end of the year.
AI – The Capex Super-Cycle Continues amid Heightened Anxiety
A Sustainable AI Infrastructure Cycle
Over the past few years, AI has clearly moved from a “software story” to a full‑blown capital‑spending super‑cycle. The largest U.S. technology platforms together are on track to invest hundreds of billions of dollars annually in data centers, high‑end chips, and supporting infrastructure, with some estimates putting 2026 AI‑related infrastructure spending alone in the 600–700 billion dollar range. This resembles an industrial build‑out more than a typical tech refresh cycle. From a macro perspective, several central‑bank and private‑sector studies now frame AI‑related investment as a meaningful contributor to real GDP growth over the next few years, potentially adding 1–2 percentage points to growth at the margin, similar in spirit to the late‑1990s investment boom. At the same time, the productivity data are only beginning to reflect these efforts, suggesting we are still in the front‑loaded investment phase, where spending arrives well ahead of the full economic payoff.
For investors, the key implication remains that AI is not just about a handful of software applications at the edge of portfolios. It has become a core driver of business investment, earnings, and macro conditions.
How We Are Allocating Capital
In our view, the investment opportunity remains in the “picks and shovels” of AI – power generation/conversion, semiconductors, connectivity, and the material inputs that make all these possible. Software has become an increasingly interesting component that is starting to generate revenue, but for large, public enterprises, AI remains more of an expense than a profit generator.
We are emphasizing companies that provide the essential infrastructure for AI rather than the end-user applications. In practice, that means focusing on four key areas:
- Power generation and conversion: Utilities, independent power producers, and equipment makers that generate electricity, modernize the grid, and convert power for high-density data centers. AI workloads are extremely energy-intensive, and we expect growing demand for reliable baseload power, transmission upgrades, and advanced power-management technologies.
- Energy inputs: Select exposures to the fuels and technologies that feed this new demand—whether traditional generation, nuclear, or renewables—where we see attractive economics and a clear link to data-center and industrial load growth. Here, we prefer companies with strong balance sheets, disciplined capital allocation, and regulated or contracted cash flows where possible.
- Connectivity and networking: Businesses that build and operate the high-capacity networks and fiber infrastructure required to move enormous volumes of data between users, edge devices, and hyperscale data centers. As traffic grows and latency requirements tighten, we expect continued investment in both backbone and last-mile connectivity.
- Semiconductors and supporting hardware: We continue to see semiconductors as a core beneficiary of AI, particularly in high-performance computing, accelerators, memory, and the ecosystems around them (packaging, testing, and specialized components). Rather than trying to time every product cycle, we look for companies with durable competitive advantages, strong pricing power, and strategic importance in the AI supply chain.
AI Anxiety: Common Fears and Our Perspective
Alongside the excitement, we recognize that many clients feel real anxiety about AI—about job displacement, misuse of the technology, concentration of power in a few large companies, and even more extreme scenarios. These concerns are understandable. Every major technological shift, from mechanization to computers and the internet, has raised similar fears. Our role is not to dismiss these worries, but to put them into context and focus on the concrete developments that matter for financial plans.
Historically, new technologies have tended to change the composition of work rather than simply eliminating it. They automate some tasks, create new kinds of jobs, and raise productivity over time, even if the transition can be uneven and disruptive in the short run. We expect AI to follow a similar pattern: some roles and processes will be redesigned, but many people will find themselves using AI as a tool to amplify their skills rather than replace them. At the same time, governments and regulators are increasingly focused on AI safety, data privacy, and market power, and we are seeing a steady tightening of oversight around high‑risk applications. That doesn’t remove all risks, but it does mean AI is developing within a framework of scrutiny, standards, and public debate rather than in a vacuum.
From an investment standpoint, we try to separate headline‑driven fears from fundamental realities. The scenarios that dominate the popular imagination—fully autonomous systems making unchecked decisions across society—are far removed from what most companies are deploying today: narrow tools aimed at specific business problems. We believe the more relevant questions for investors are: Which parts of the economy will see sustained productivity improvements from AI, where will capital be deployed to support that, and which companies are positioned to earn attractive returns on that investment? By concentrating our exposure on the infrastructure and “picks and shovels” of AI, and by maintaining diversification and risk controls across the portfolio, we aim to benefit from the long‑term potential of this technology while remaining mindful of both the opportunities and the limits of what AI can reasonably achieve.
A Note on Private Credit and the Interplay with AI Fears
In recent weeks, fears around the Private Credit ecosystem have emerged, particularly due to the concentration of loans to software companies. Roughly 20% of private credit loans are made to software companies. The fear is that AI will replace many companies in the software space, and debt repayments will suffer, thus negatively impacting private credit funds and their managers.
We believe this fear is largely overblown. We view it as highly unlikely that corporations, with complex systems, integrations, and cybersecurity protocols, will choose to replace their complex software systems with an AI-coded application. While some of the simpler software offerings are likely to be replaced, most will integrate with AI rather than be completely replaced by it.
Recent headlines would lead many to believe that private credit funds are doomed due to higher redemption requests by investors, but we view this as a limited situation. Some private credit fund managers will be affected more than others, given the fundamentals of their respective loan books, but as software companies report earnings in the coming months, we believe fears will largely be assuaged, and redemptions will normalize. As is always the case with private investments, manager selection is paramount and the most important indicator for success. For the limited private credit exposure we have, we’ve ensured that our chosen managers are diligent in their loan underwriting, properly diversified, and protected against losses to a large extent. Private credit concerns will certainly continue to grab headlines here or there in the coming months, but we do not view the current situation as systemic to the broader asset class.
Market Concentration and the Importance of Proper Diversification
We have written on this topic before, but feel it is important to reiterate that the S&P 500 has become increasingly concentrated and that owning the index might be a suboptimal strategy this year. While the largest companies in the market have driven the broader index forward over recent years, we believe 2026 may be different. Many of the world’s largest companies are spending massive amounts on AI infrastructure this year, and until these investments begin to bear fruit, earnings, cash flow, and performance may suffer. The top 10 companies in the S&P 500 now make up roughly 38% of the index, so “just buy SPY” not only may hinder portfolio performance, but it also isn’t the same diversification strategy it used to be. To benefit from proper diversification and to seek outsized returns, we opt for an investment strategy that selects both 1) A diverse group of companies to provide proper diversification and 2) Companies we believe will perform well that have little to no exposure in the S&P 500 index.
Already year-to-date, the equal-weight version of the S&P 500 is significantly outperforming the market-cap-weighted index. In the first quarter, the equal-weighted index was up 0.2% compared to the cap-weighted index, which was down 4.6%.
We believe this trend is likely to continue throughout 2026 as market returns broaden beyond the largest companies. By selecting companies with strong cash flows, positive earnings growth, and reasonable valuations, we expect continued strong performance across the equities in our portfolios.
Conclusion
The Iran conflict is injecting unforeseen volatility into our portfolios that were performing quite well up until the end of February, but we feel confident that in a couple of more months, this conflict will be behind us. We still feel very positive about the equities and assets we are including in portfolios and believe the fundamentals supporting them will prevail. Artificial Intelligence is providing significant fuel to the economy, and we are well-positioned to benefit from its continued capex expansion. While market downturns aren’t comfortable, they are common, and this is another one we will see ourselves on the other side of by the year, if not sooner. We will remain diligent in our positioning and will adjust portfolios accordingly as macroeconomics and market fundamentals change.
We at Beck Capital Management wish you all the best as we head into Spring.