A warning sign flashing in the $1.8 trillion private credit market.
Shares of Blue Owl Capital tumbled 10% yesterday, hitting their lowest level in over two years.
And in New York morning trade, we are looking at shares pulling back with a Blue Owl down about 30% year to date, while a shock decision to restrict withdrawals from one of its key funds.
So investors are being told they'll have to wait for loan repayments or asset sales to get their cash back.
Well this liquidity crunch is pulling back.
The curtain on the risks hiding beneath the surface, specifically the massive debt tied to a struggling tech sector.
Well joining me this morning to weigh in is co-founder and CEO of key advisors wealth management.
Good morning and thank you so much for joining me.
While you did predict a 20% tax correction for the first half of this year and you've already slash your tech exposure.
So do you think Blue Owl is just an isolated liquidity issue or is this the beginning of trouble brewing in private credit?
You know, I don't know yet.
It's too early to tell, but what I will say is this is a big warning sign that should become people to be very cautious.
Don't discount it, because if there becomes a funding issue in the AI trade, then this means this is the early innings of the sell-off because this entire data centers and things.
And CapE spending is on the premise that funding is going to be very easy to access and if funding starts to close up for certain companies, for example, it sounds like Coreweave is having issues with their Lancaster, Pennsylvania data center of getting funding for that.
That's a major problem for these companies and for their stocks, so.
This news just confirms what we were talking about at the end of last year, that tech is going to go through a correction phase in 2026, and this is just another data point that supports that right now there's just better, better areas to be in and to be protected because these stocks have had huge runs, and that means they could also have big drops.
I do want to get to the better areas to be in.
So you also still believe that the 2nd quarter of this year will be the toughest yet.
So walk us through both of these points that you'd like to make.
So when we look at the 2nd quarter, you know, right now, for the big names, software has kind of been the area that has really taken the biggest hit.
Um, and we believe as we go into the 2nd quarter, earnings growth is decelerating on these tech companies.
So that started here in this 1st quarter.
Usually your 1st move down is not your last.
So we think the 2nd quarter will show more deceleration on earnings growth as well as CapE spending.
Um, and then what's happened in software unfortunately we believe is going to bleed into the semiconductors and then the broader NASDAQ.
So more than likely if we are right, the best time for us to reenter these trades will be late 2nd quarter or early 3rd quarter of this year when things are much lower than where they are now.
And we're counting down to Nvidia's earnings next week.
I understand you believe the make or break moment for tech is the upcoming Nvidia reports.
So if the market does have a negative reaction to even a strong report, does that prove the AI hype cycle has officially broken?
It will prove that from a short term perspective.
So the reason why we're calling it a make or break moment is Nvidia is either going to take us to another leg up before we go down, or if the market rejects it like it did on our Palantir after strong numbers, then we know that the semis are in big trouble.
Nvidia is the biggest name the.
Strongest name and we believe the most important name in Wall Street.
We own Nvidia for full disclosure.
We think their earnings will be strong, uh, but it's a coin toss in regards to what the market is going to do.
And if they reject it, uh, then we're going to have an acceleration to the downside, and that's when the selling will broaden out to the broader NASDAQ.
And while technology reels, I understand you're rotating into value you like energy, home builders, international exposure.
So if investors play defense now, what specific signals are you looking for in the second half of this year to finally start buying technology again?
So what we have to see on the technology side is we need to see it, we need to see bottoming out, you know, this has only been the sell-off has only really started since the October time period.
So we're very early in this.
It takes several months when you have technical damage for things to bottom out.
Uh, so you want to look for technical signals, but the most important thing to us is we need to see stabilization in regards to earnings growth.
If it continues to decelerate. the market will continue to punish it.
And as we've told clients, there's plenty of bull markets out there right now.
We're betting on the economy in economically sensitive areas, and it's OK that tech is not the one that's leading this year.
It's actually healthy.
The market's broadened out, and there's more things to own than just tech for 2026.
Unfortunately, I think a lot of people are in love with that name, the AI trade, and they're overexposed and are probably having a tough start to the year.
Well, Eddie, we will have to leave it there, but thank you so much for joining us this morning to weigh in.
We appreciate your time and all of your insights.
Thank you for having me.
