American Pie

Capital markets are on guard following an influential Citrini Research post from earlier in the week: Its argument centers on rapid unemployment due to AI’s displacement of human intelligence. The authors argue that, in a near-future state,

“AI capabilities improved, companies needed fewer workers, white collar layoffs increased, displaced workers spent less, margin pressure pushed firms to invest more in AI, AI capabilities improved… It was a negative feedback loop with no natural brake. The human intelligence displacement spiral.” ¹

The piece details impacted industries ranging from software to tax preparation, payment processors, real estate brokers, mortgage lenders and food delivery, to name a few. In addition, “white collar” workers suffer from downward compensation adjustments, equity values fall and resultant consumption falls. The post generated enough concerns that several major news and financial outlets attributed a down equity market earlier this week to its publishing.

Several rebuttal pieces have since emerged. The contrary views center around gradual AI diffusion across industries and time, AI’s eventual deflationary benefits accruing back to consumers and businesses, the emergence of new industries and competitors that Citrini didn’t contemplate, and how companies that benefit from more widespread AI applications within their business can move up the service value chain more quickly, enhancing the value they create.

The truth sometimes rests somewhere between polarized views, and we have to acknowledge a likely non-linear path that could include alarming headlines and lots of less visible yet powerful operating subcurrents. We are reminded of the film Jurassic Park, when visiting scientist and skeptic Dr. Ian Malcolm (played by Jeff Goldblum) quipped “Life, uh, finds a way,” adroitly predicting that, despite hopes to contain dinosaurs from breeding, the park’s designers would ultimately be unsuccessful. With technological advancements surrounding our economy and capital markets from their inception, competition and new industries have found a way — to predict otherwise, as foggy as those eventualities may seem now, would represent a new paradigm.

As the Wall Street saying goes, “in price is truth, at least in the short term.” The S&P North American Expanded Technology Software index fell 35% from its September 22, 2025 peak to its most recent low on Monday. While the above-mentioned Citrini post was more hypothetical and admittedly a thought piece, it crystallized some investor concerns that led to this selling — however, some suggest that we have reached “peak” software concerns. While we are not bold enough to make that claim, we can cite a few notable developments from this past week that are generally supportive of the industry.

First, Anthropic, a private company viewed as one of the larger industry disruptors given its Claude AI plugin technology, announced several partnerships on Tuesday. These companies, including Salesforce, Intuit, Docusign, LegalZoom, FactSet and Google, could integrate the Claude Cowork application tool to increase productivity. Second, Financial Technology firm Block announced a 40% staff reduction and cited AI gains as one of the catalysts for its downsizing, and its stock initially rallied as much as 21% on Friday. Third, in yet another Citrini rebuttal piece, Citadel Securities’ Frank Flight noted that, contrary to popular narratives, Indeed.com job postings from employers seeking software engineers has, since May of last year, rapidly increased on an absolute basis and relative to total job postings on Indeed’s site.²  As noted above, we anticipate a prolonged adjustment period for companies and the labor force — the pendulum of fear can swing too far in either direction, but the adjustment period will likely include ebbs and flows that create investment opportunities within public and private markets.

The average conforming 30-year fixed-rate mortgage fell below 6% this week for the first time since 2022. Based on average home prices, this translates to an increase of over $34,000 in consumer purchasing power since this time last year when rates were close to 7%, based on data from real estate service Redfin.³ However, Redfin notes that would-be buyers have thus far remained on the sidelines, with pending home sales dropping 5.5% for the four weeks ending February 22 — the biggest drop in over a year.⁴

Looking across other asset prices and indicators, we think the move lower in interest rates is consistent with investors feeling some level of caution and retaining optionality for two-sided risk. The economy continues to perform well, consumers remain resilient, and equity markets are only a few percentage points away from all-time highs. However, bond prices continue to rise, the dollar is grinding higher, credit spreads (the additional compensation lenders require from borrowers) are increasing, and the VIX Index, which is a snapshot of one- and two-month expected moves in the S&P 500, has been creeping higher. Traditional safe havens, like the dollar, U.S. Treasury bonds (which have the largest impact on mortgage pricing) and the Swiss Franc, all suggest that trade policy, central bank activity, unemployment risks and geopolitical tensions in the Mideast have investors’ attention. While we maintain a glass-half-full outlook for diversified portfolios, we have to respect that we have had several years of strong asset returns in traditionally riskier asset classes, and the current setup presents two-sided risk that markets continue to price in. Even a higher-than-expected Producer Price Index reading on Friday didn’t send interest rates higher and bond prices lower.

We don’t want to get into the habit of commenting on all of the fits and starts of a given market, but with investor concerns still high and headlines mounting, here are our latest perspectives.

First, with any investment category we watch, the fundamental value of the asset is most important to us, coupled with what we will call any “wedge” that may complicate realizing that value. In the case of private credit, an investor (or creditor) cares about the fundamental (or intrinsic) value of that loan. Like any bond or loan that you hold to maturity, your maximum return in most cases will be the principal of the loan plus interest payments, actual or implied by a price discount that accrues to maturity. In the case of private credit, many intermediaries that link investors and borrowers have exposure to the software sector. Unlike public markets, which have near-constant updates to prices, private loan “marks” or appraisals are less frequent. This week, a few software company loans were marked down, and those lower marks have caused some to reflect concerns about a read-through to other loans. That said, a loan or an appraised value is just that; a reflection of a third-party view about a loan’s market value at a point in time.

Second, several popular financial press articles discussed investors seeking liquidity in private credit vehicles due to concerns about current circumstances and headlines. While managers have mechanisms to limit liquidity (which we deem as essential given the nature of the underlying assets), forcing managers to sell assets at exactly the wrong time is not a practice we endorse. We continue to view private credit as a worthwhile category, but we are mindful of newer entrants both on the supply side (newer funds without sophisticated liquidity management) and demand side (investors who have been improperly positioned or not well educated on the category’s prospects or risk factors). The opportunities we seek include established, experienced managers for clients uniquely situated to bear the risk-return tradeoff inherent in this space. 

[1] https://www.citriniresearch.com/p/2028gic. Accessed 27 February 2026.

2 https://www.citadelsecurities.com/news-and-insights/2026-global-intelligence-crisis/. Accessed 27 February 2026.

3 https://www.redfin.com/news/housing-market-update-mortgage-rates-fall-affordability-improves/. Accessed 27 February 2026.

4 Ibid.