By Steve Garmhausen
The length of the Iran war is pivotal for the economy, and that's why Stephanie Link thinks a relatively short conflict may be likely. "I can't imagine that the Trump administration wants to go into the midterms with oil where it is, with inflation where it is, and with growth slowing," says Link, the chief investment officer at Hightower, which has about $200 billion in assets under management.
Speaking with Barron's Advisor, the veteran market strategist shares her thoughts on the recent troubles in the public equity and private credit markets and says there's no shortage of attractive buying opportunities. She argues that the selloff of cybersecurity stocks is a "huge mistake." And she says that while Europe is best avoided, Brazil stands out as an intriguing play.
What are your thoughts on the Iran war's economic impact? Obviously the big question on everyone's mind is the length of this whole thing. If it's on the shorter side, I think we can get back to the economy growing above trend. I think that the U.S. economy is strong enough, there was enough momentum before the war. We're running at about 2% to 2.5% GDP growth. Consumers continue to spend because the labor market, even though it's cooling, is not collapsing. In fact, there's one job available for one unemployed person in the country as of today. I think it's a no-hire, no-fire kind of situation, but the consumer is still doing their thing. And of course what I call the AI food chain is alive and well. It's not just the Mag Seven. AI means you need more data centers. It means you need more power, and you need to upgrade the electrical grid. So all of those industries are benefiting. Capex going higher has massive implications throughout the economy.
I actually think we're better off now in terms of economic growth than when we were back at "liberation day" a year ago. But short term we have to get answers, and we don't know when we're going to get them. That's the whole reason the market has done what it's done over the past couple of weeks. If this is a prolonged situation, four to six months or more, I think that will have massive implications for the consumer. It's not just oil, it's everything, including agriculture. There's no question that there will be inflationary impacts the longer it lasts. The infrastructure destruction in the Middle East is going to take years and years to rebuild. I'm much more worried about Europe than I am about the United States. We're energy independent, and they are not. So clearly, medium-term implications are much more negative for Europe as well as for Asia.
Is stagflation a serious risk or concern in your mind? Yes, for sure. But if we take the administration at their word -- and that's all I can go by -- [they say] four to six weeks. If it's a little bit longer, OK. But if it's four to six months, it will certainly drag down the growth situation. The irony of this whole thing right now is that the S&P 500's average multiple has come down 17% from its highest point, at 19-times forward earnings. And earnings are accelerating at the same time: Earnings growth is about 14%. So that's a nice combination. Whatever we're talking about from the economy point of view, you have to bring it back to the equity markets, and I think you're starting to see interesting opportunities. By the way, I also think you're seeing interesting opportunities in the bond market if you believe that this whole thing will be short-lived.
Should U.S. investors who have ventured abroad be re-onshoring here? One hundred percent. I would not try to bottom-fish Europe at all. They have a lot of problems anyway, with the regulation and the restrictive environment and the lack of growth. I actually think Brazil is interesting. No one really talks about it, but the ETF this year is up. [The iShares MSCI Brazil ETF was recently up 20% year to date.] What's interesting about Brazil is that everyone thinks it's a commodities country. It is for sure -- agriculture is 23% of their GDP. But they also have what everyone else wants: They have power, more than most countries. So they will participate in this whole AI buildout as well. But on the margin, money should come back to the United States, especially valuations.
Countries don't go to war over sunlight or wind. Does the Iran war make alternative energy solutions look more attractive? Absolutely. I think they're a big part of the equation of power. And we're going to use power wherever we can get it in the world. It is probably going to be not just renewables but also nuclear, natural gas, regular crude. We need power. We do not have enough of it. We need 30,000 data centers by 2030 to build out the capex that the Mag Seven have announced, compared with 11,400 right now. And this theme is going to go on for a very long time, in my opinion. And then, of course, we have not upgraded the grid in over 50 years. In fact, 75% of the grid is over 25 years old.
The AI trade has dominated market discourse for a couple of years now. What opportunities are being overlooked? We're in, like, the second inning of AI. I think we haven't even gotten out of the dugout when it comes to cyber security. And by the way, that industry has gotten hit along with software. I think that is a huge mistake. AI is not secure, and more and more companies are using AI for coding, which makes it even less secure. So to me, if you have a longer timeframe, cybersecurity is a no-brainer.
Related to AI is the disruption of software companies and the impact on private credit. What inning do you think the private credit saga is in? I think we're in the third or fourth inning. Do I think it's systemic? I do not. In fact, I think there are a lot of opportunities in the big banks. They don't have nearly as much exposure to private credit, but they also have very diversified businesses. And I think they're taking share from the private market. There are some bad actors on the private credit side of things, but I think the big managers are more diversified in terms of software. There's some exposure, sure, but investors are throwing everything out here. If you have mission-critical software, that is not going to be displaced at all, in my opinion. A company like Synopsys, for example, I think is very well positioned. ServiceNow is very well positioned. The jury is out for Salesforce and Microsoft and that sort of thing. They're going to have to change their businesses. And they will figure it out.
But here's the thing about private credit: I think we're not done with the redemptions. I don't think retail investors knew how illiquid these assets and vehicles were. At the end of the day, it's lack of education. Quite frankly, they're illiquid. Most of us know this, but that's why you're seeing a little bit of a panic of, "Oh, I thought I could get my money out, and now I can't." If you're going to gate at 5% but you're getting redemptions requests at 14%, that's going to spill over into the next couple of quarters. That is why I think we're in the early innings as far as redemptions.
Do you have an eye on the midterms in Washington yet? Do they have serious implications for the market? Yeah, I do. First and foremost, the market's favorite makeup is a mixed Congress, because nothing gets done. But I think this go-round is interesting. One of the reasons I think this has to be a short-lived war is because of the midterms. I can't imagine that the Trump administration wants to go into the midterms with oil where it is, with inflation where it is and with growth slowing. That's a bad recipe going into the midterms. We think that the Republicans are going to lose one chamber. If they lose both chambers, then really nothing [legislatively] gets done. So a mixed Congress is not bad. But if it flips to all Democrats, that gives President Trump a lot more headaches.
Do you want to make any more calls of unappreciated investment opportunities on the equity side? Within AI, I love the infrastructure companies, Rockwell Automation, Vertiv Holdings, Eaton Corp., GE Vernova. They've all had really nice runs, but the backlogs we're seeing are enormous. They've never seen backlogs like this. Should the market pull back and take these socks down, that will be a great opportunity to play on the infrastructure.
How are you navigating the bond market right now? I think bonds in general are buys here. It's amazing that since the war started yields have gone up pretty substantially, obviously because of inflation scares. I get why they're they're going higher, but I think that is absolutely an opportunity. It goes back to what we were talking about as far as equity investors selling international and coming back to the United States. The same thing happened last year with bonds and yields. We had asset allocators and central bankers trim their exposure to U.S. fixed income and reallocate around the world. I think you're going to start to see that reverse again. Last year, it was all about tariffs, and everyone was nervous about not knowing the policy. Now tariffs have been walked back. We just need to get through this war. Where is the opportunity? I lean on the corporate side. I think you can get some good values there. But it's a mix of Treasuries, corporates, and munis. It just looks attractive to me across the spectrum.
What else do you think is interesting that's going on in the markets? Here's an interesting stat: Over 50% of the companies in the Russell 3000 are down 20%. Since the war started, equal-weight defensives, meaning staples and that stuff, have underperformed. And the S&P 500 is off 6% year to date, but at the same time the equal-weight S&P 500 is only down 2%. This broadening out started at the beginning of the year. During the selloff, the equal weight has held up remarkably well, much more so than the market-weighted index. And that's because we know 35% of the S&P's weighting is technology and computer services, and they haven't done well. All of the Mag Seven are in the penalty box, and not just because of what they're spending on capex. It's because their free cash flows are getting depleted.
You can say it's a growth industry so you need to invest. I get all that. And we just said AI is in the second inning, so I understand why they're spending. But I'll tell you, as an investor I think they're in the penalty box because we pay high multiples for technology companies that have free cash flow. Some of these companies now have negative free cash flow, and some of them are going to the debt markets to actually fund their capex. That's not to say we're not going to get great opportunities for the long term. In fact I think some of the names right now are trading very attractively. But it is certainly something that I don't think is going to reverse for the time being. And I like the fact that we are seeing this broadening out, even in the face of a correction. I think it's pretty important.
Thanks, Stephanie.
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April 10, 2026 11:39 ET (15:39 GMT)
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