Investors Weigh Geopolitics, AI and Credit Risks in a Cautious market outlook

Global risk assets spent the week oscillating in narrow ranges as traders tried to balance geopolitical uncertainty, AI disruption and credit-related fears within a fragile market outlook.

Cross-asset markets pause between fear and resilience

March opened with markets trapped between opposing forces and unable to commit to a clear direction. The dominant February themes of AI-driven margin disruption and private credit fragility remain unresolved, while a sharp escalation of Middle East tensions over the weekend added a fresh layer of uncertainty.

However, price action across major asset classes followed the same template: an initial shock, a sharp retracement and then stasis. The S&P 500 has now spent over 69 consecutive sessions trading within a 2.5% band of its 50-day moving average, one of the tightest post-pandemic ranges. Credit protection costs are edging higher, yet spreads remain broadly orderly.

Moreover, Bitcoin has shown similar dynamics. Sentiment is weak and funding rates have collapsed to levels last seen in 2023, but spot demand is starting to stabilise. Everywhere, the message is consistent: investors have de-risked and hedged, and are now largely waiting for clearer macro and policy signals.

Middle East tensions, energy risks and the macro transmission

The weekend brought a sudden escalation in Middle East tensions that initially rattled global markets during thin liquidity. Bitcoin, which trades around the clock, reacted first, dropping to roughly $63,000 before staging a rapid rebound back above the $70,000 area and erasing the entire geopolitically driven drawdown.

By Monday’s cash close, the broader equity reaction appeared surprisingly muted. The S&P 500 finished the day with a barely visible 0.04% gain, effectively downplaying the weekend headlines. However, the spike in implied volatility and brief flows into safe-haven assets confirmed that investors were not ignoring the risk.

This pattern of violent initial move followed by rapid mean reversion suggests markets currently view the confrontation as a contained, episodic shock rather than the start of a structural change to the global risk regime. That said, the situation remains fluid, and any sustained disruption to regional energy flows could quickly reprice this assumption.

Bitcoin and crude oil: a shifting, regime-dependent link

The latest flare-up also highlighted the complex and unstable relationship between Bitcoin and crude oil. At the moment, Bitcoin shows a negative 90-day rolling Pearson correlation with WTI crude, implying the two have recently moved in opposite directions. On the surface, that pattern fits a narrative where higher energy costs hurt growth-sensitive risk assets.

However, an analysis of daily returns since 2019 reveals a more nuanced picture. On days of extreme oil strength, Bitcoin has often rallied alongside crude, behaviour more consistent with an inflation-hedge argument. On sharp oil selloffs, Bitcoin has tended to fall, echoing broad risk-off dynamics. In other words, the correlation is regime-dependent and directionally inconsistent.

Moreover, this means investors should avoid treating any perceived Bitcoin–oil linkage as a reliable hedging tool. The relationship reflects prevailing macro stories, not a structural law, and those narratives can shift quickly as markets reassess whether oil moves signal inflation, demand destruction, or both.

When energy shocks become a macro and policy problem

While the first market reaction has been manageable, a protracted disruption to oil supply would have repercussions well beyond commodities. According to Federal Reserve research, a persistent 10% increase in crude prices tends to lift headline CPI by roughly 0.4 percentage points. In the current environment, where policymakers are trying to complete inflation’s descent toward target without stalling growth, even a modest but lasting energy shock could meaningfully shift the policy path.

The fiscal channel compounds the risk. A sustained regional crisis would likely prompt higher spending on defence and energy security, requiring extra Treasury issuance at a time when government bond markets are already digesting elevated supply. More issuance, coupled with stickier inflation, would push term premia higher and tighten financial conditions, undermining risk assets just as earnings visibility is being questioned.

S&P 500 compression: AI, software margins and private credit stress

The S&P 500 has behaved like a coiled spring, locked in that 69-day compression around its 50-day moving average. Bulls point to resilient corporate earnings, an ongoing expansion in payrolls and the expectation that monetary easing will eventually materialise. Bears highlight pressures on software profitability from AI, increasing concerns around private credit and the re-emergence of geopolitical risk.

Moreover, this standoff is visible in positioning indicators. Investors are adding hedges rather than making aggressive directional bets, indicating a reluctance to commit capital until they see more clarity on growth, inflation and policy timing.

AI software margins move from tailwind to potential headwind

Beneath the index-level calm, one of the most consequential debates is whether AI is about to transition from earnings tailwind to margin headwind for the software sector. Autonomous AI agents capable of handling complex, multi-step workflows now threaten to compress pricing power and disrupt existing business models.

A recent Citrini Research report sharpened this conversation by outlining a scenario where AI automation pushes the unemployment rate to 10.2%. The study has drawn criticism for simplified assumptions, including limited attention to energy constraints, regulation and the historical creation of new job categories. However, the directional concern is gaining traction as real-world examples accumulate.

Block has announced workforce reductions linked to AI, while WiseTech Global signalled plans to reduce some teams by up to 50% in headcount due to AI-driven productivity improvements. These are not distant hypotheticals; they are live operational decisions. That said, markets are still debating whether these moves represent early signals of broad-based margin expansion, or the start of disruptive pricing pressure that could weigh on valuations.

Positioning data from Goldman Sachs prime brokerage indicates that institutional investors are turning more cautious. Short exposure in software and services has risen meaningfully, reflecting rising doubts about how sustainable current profit assumptions are in a world of rapid AI diffusion.

Private credit: liquidity scares, real losses and hidden leverage

Private credit remains under scrutiny after two recent episodes that have shaken confidence in parts of the shadow banking complex. The first involved Blue Owl Capital, which faced heavy redemption requests that strained the liquidity profile of its direct lending funds. Blue Owl ultimately sold $1.4 billion of loans to institutional buyers at close to par, confirming that the portfolio’s credit quality was intact and that the problem lay in liquidity mismatch, not asset impairment.

The second episode proved more serious. The bankruptcy of a large asset-based lending operation exposed deep weaknesses in counterparty risk management and operational controls within asset-based finance. Several major Wall Street institutions were affected, revealing linkages that many investors had underestimated. Unlike the Blue Owl case, this failure involved true credit and operational losses rather than timing mismatches.

Together, these events have crystallised concern about potential “hidden cockroaches” in the fast-growing private credit universe. Over the past five years, the sector has expanded rapidly, with a notable share of new origination flowing into AI-related infrastructure such as data centres, power assets and semiconductor supply chains.

Moreover, if expectations for AI capital expenditure start to moderate, especially under pressure from squeezed software margins, the credit quality of these concentrated exposures could deteriorate faster than consensus anticipates. The options market reflects rising anxiety: put open interest on major credit ETFs has surged to the highest levels since 2023, signalling a steady increase in demand for tail-risk protection even though markets are not yet pricing a systemic shock.

Bitcoin market structure: extreme fear but signs of stabilisation

Bitcoin enters March with sentiment indicators still flashing pessimism despite some nascent signs of stabilisation. The Crypto Fear and Greed Index stayed locked in “Extreme Fear” for the whole of February, rivaling some of the longest negative stretches in the asset’s history, and early March readings have only slightly improved.

In real time, such extreme readings reflect genuine stress: retail engagement falls, social activity declines and discretionary capital retreats. However, in hindsight, these periods have often lined up with attractive entry zones because they typically occur after the bulk of forced selling has passed through the system and marginal sellers are exhausted.

Moreover, this time the apparent washout is being confirmed by derivatives and on-chain data, suggesting the market may be transitioning from capitulation toward a more constructive consolidation phase.

Funding rates, long-term holders and ETF flows

The most compelling technical evidence of cleansing comes from the perpetuals market. The annualised Bitcoin funding rate, measured on a 3-month rolling basis, has fallen to its lowest point since 2023. When funding collapses toward zero or turns negative, it suggests that leveraged long positioning has been largely unwound, whether through voluntary deleveraging or forced liquidations.

In the near term, this removes a source of upward pressure because there are fewer traders willing to pay a premium to run leveraged longs. Over the medium term, however, such resets tend to provide a healthier base for sustainable advances, as rallies are then driven by spot demand instead of reflexive leverage.

On-chain, long-term holder net distribution is clearly slowing. After a lengthy phase of profit-taking that accompanied Bitcoin’s 2025 rally, the most price-sensitive veterans now appear to have completed much of their selling. The market sits in a transition zone: selling is fading but large-scale accumulation by long-horizon investors has not fully resumed.

That said, a renewed shift to net accumulation by this cohort would be a historically powerful signal and deserves close monitoring in the weeks ahead. Supporting this cautious optimism, spot Bitcoin ETFs just logged their first weekly net inflow of $787.31 million since mid-January, breaking a six-week run of outflows that had weighed on both price and sentiment.

Tax season liquidity: from short-term boost to potential drain

The annual tax-filing cycle is adding a distinctive seasonal liquidity pattern to US markets. Early data for 2026 show average refund amounts running higher than last year, supported in part by the One Big Beautiful Bill Act (OBBBA). This provides a near-term lift to household cash flows, which can feed into stronger retail spending and, in some cases, increased allocations to risk assets.

However, the more consequential phase may arrive closer to the April 15 tax payment deadline. Investors and households will need to settle capital gains liabilities following significant realised profits in both equities and digital assets during 2025. The associated transfers from brokerage accounts to the Treasury represent a material liquidity drain.

Moreover, this shift from refund-driven tailwind to tax-payment headwind tends to coincide with periods when markets are searching for direction. Historically, similar windows have introduced choppier trading conditions across risk assets as retail flows move from incremental support to temporary drag.

Tokenised asset trading and 24/7 price discovery

Tokenised real-world asset (RWA) markets continue to make structural progress, both in terms of products and trading infrastructure. Binance recently listed Ondo tokenised securities on Binance Alpha with zero trading fees, while other large centralised exchanges are racing to expand their own tokenised securities line-ups.

However, some of the most important developments are behavioural rather than purely technical. As major geopolitical events increasingly erupt over weekends, traditional venues for equities, bonds and commodities remain closed, creating a gap in real-time price discovery exactly when demand for information is highest.

Decentralised perpetual futures platforms are starting to fill that gap. During last weekend’s Middle East escalation, Bloomberg highlighted Hyperliquid‘s decentralised perpetual market for crude oil as a key source of live pricing, effectively treating a crypto-native exchange as the leading indicator for one of the world’s core commodities.

This marks a quietly important shift in how mainstream finance views 24/7 blockchain-based trading. Rather than niche alternatives, these decentralised venues are emerging as complementary infrastructure that can provide continuous pricing when legacy markets are offline. Moreover, as geopolitical fragmentation and around-the-clock information flows continue to grow, the value of always-on price discovery is likely to rise in step.

Looking ahead: macro data, geopolitics and digital asset positioning

As Bitcoin appears increasingly desensitised to short-lived geopolitical shocks, investor focus is pivoting back toward economic fundamentals. Attention is now turning to this Friday’s nonfarm payrolls release and next week’s inflation data, which will help shape expectations for the path of monetary policy.

Recent indicators have already surprised to the upside. The ISM Services PMI for this week printed at 56.1 versus a 53.5 consensus, a six-sigma beat and the strongest reading since August 2022. Meanwhile, ADP employment showed a gain of +63k jobs compared with +50k expected, reinforcing the narrative of a still-resilient labour market.

Moreover, as markets digest these data, risk appetite could gradually rebuild if investors conclude that growth remains solid while inflation continues to trend lower. In equities, ongoing geopolitical uncertainty is likely to keep broad indices range-bound in the near term. Within digital assets, participants are watching closely for a decisive accumulation signal from long-term Bitcoin holders, while derivative positioning now favours buyers after a deep washout.

In summary, markets are entering a phase defined less by immediate crisis and more by competing narratives around growth, inflation, AI disruption and credit quality. How investors resolve these tensions over the coming weeks will determine whether the current equilibrium breaks toward renewed risk-taking or a more defensive stance.