The markets have been on quite a rollercoaster this past week, with prices swinging wildly amid a flurry of news, rumors, and what I’d call “excessive amounts of craziness.” Let’s break down what’s really moving the needles and what it means for investors.
The week kicked off with what initially looked like a bullish catalyst when the Trump administration announced plans to lift certain aid program restrictions. However, that optimism was quickly overshadowed by a significant development from China: DeepSeek’s announcement of an AI system that supposedly outperforms U.S. competitors while using substantially less computing power.
This revelation triggered a massive selling wave in the markets. While there are legitimate questions about whether DeepSeek’s technology was developed independently or borrowed from OpenAI (and serious doubts about their reported development costs and computing resources), the message was clear: China is asserting itself in the AI race. As Marc Andreessen aptly called it, this is something of a “Sputnik moment” for AI competition.
But true to form in 2025’s market environment, these concerns were quickly washed away as buyers stepped back in. The market’s resilience was then tested again by a new round of tariff announcements. President Trump’s administration targeted Mexico, Canada, and China, though the situation with our North American neighbors resolved quickly. Mexico, facing potentially devastating economic consequences, quickly negotiated a deal. Canada, with Prime Minister Trudeau facing political headwinds ahead of an expected snap election, followed suit.
The situation with China remains more complex. Despite plans for talks between President Trump and President Xi Jinping, recent reports indicate Xi has declined the discussion, and China has already issued retaliatory tariffs. This continued tension with China likely won’t be the last we see of such trade disputes.
Looking at the technical picture, the market’s underlying strength remains impressive. We’ve been in an uptrend for roughly 20 months, consistently bouncing off the 50-week moving average. While there have been brief threats to this pattern, particularly during last year’s economic concerns, the trend has remained resilient.
However, investors should maintain perspective. Various metrics – market cap to GDP, aggregate allocation to equities, excess CAPE yield – all suggest stocks are significantly overextended. While this doesn’t necessarily predict an immediate downturn, it does suggest that income-producing investments might offer better opportunities over the next decade.
In the fixed income markets, we’re seeing an interesting contrast to equities. While stocks have maintained their upward trajectory, bonds have struggled to establish a sustained uptrend. Despite market expectations for rate cuts, some prominent voices, including Torsten Schlack at Apollo, suggest there’s actually a 40% chance of rate hikes this year.
Recent earnings reports from key players in the mortgage REIT sector have been encouraging. Annaly Capital Management reported solid results with a 12.85% dividend yield and reduced economic leverage. Their diverse portfolio across agency securities, residential credit, and mortgage servicing rights positions them well for various interest rate scenarios.
Similarly, KKR Real Estate Finance Trust has impressed with its recent performance, offering a 10% yield backed by a high-quality loan portfolio. The company’s focus on senior loans and strong institutional backing from KKR provides additional security.
Perhaps most significantly, Blackstone’s recent earnings call provided a crucial perspective on real estate markets. When John Gray, Blackstone’s president and former real estate division chief, declares we’ve reached a bottom in commercial real estate and high-grade office properties, investors should take notice. This could present significant opportunities in commercial mortgage REITs offering 10-11% yields.
In conclusion, while market volatility persists and global tensions simmer, opportunities remain for income-focused investors. Our portfolio maintains an average yield of around 9%, positioning us well for long-term outperformance versus the S&P 500, with a significant portion of returns in dependable cash distributions.
The key is maintaining perspective amid the noise and focusing on fundamentals rather than getting caught up in day-to-day market swings. As always in these markets, we’ll stay vigilant and adapt as conditions evolve.