Cracks in the Foundation: What Iran, Private Credit, and Housing Are Signaling

Over the past 90 days, the narrative around the U.S. economy has shifted dramatically.

While much of the media focus has centered on the war with Iran, the data suggests there are broader underlying issues at play.

 

GDP growth from Q4 was revised to 0.7%, well below expectations of 1.4% and a sharp drop from the previous 4.4%. In a matter of months, the economy has gone from one of the strongest growth environments in years… to barely moving forward.

At the same time, inflation hasn’t cooperated. Core PCE remains at 3.1% year-over-year, still well above the Fed’s 2% target. Durable goods orders came in flat (0.0%), missing expectations of 1.1%. When companies stop investing in equipment, it’s often a quiet signal—they don’t have confidence in what comes next.

This combination is what markets fear most: stagflation.

The Federal Reserve is now in a difficult position:
• Cut rates, and inflation risks reaccelerating
• Hold rates, and growth may stall further
• Raise rates, and something in the system could break

 

Where the Pressure Is Building

While private credit has received a lot of attention recently, the bigger concern may be closer to home.

Housing—roughly 20% of the U.S. economy—is starting to show real signs of stress.

New single-family home sales declined 17.6% in January to a 587,000 annualized rate—well below expectations of 722,000. Sales are now down 11.3% year-over-year, marking the steepest decline in three years.

It’s also important to note—these contracts were signed in January, meaning this slowdown isn’t simply a function of mortgage rates.

Some have pointed to weather as a factor, with the Northeast down 44.7% month-over-month and the Midwest down 33.9% month-over-month. But even when accounting for regional impacts, the scale of the decline is hard to ignore.

And while headlines have focused on potential risks in private credit, housing remains far more systemically important—both to the broader economy and to the banking system itself.

Housing isn’t just another sector. It sits at the center of:
• Consumer balance sheets
• Bank loan books
• Credit creation across the economy

If housing weakens, it’s not isolated—it directly impacts the foundation that traditional banks rely on far more than private credit markets.

 

A Market Beneath the Surface

At the same time, the stock market is telling a different story—one that’s easy to miss if you’re only looking at headline indexes.

Since October 2025, markets have struggled to regain their highs. And more importantly, the leadership that carried markets over the past few years is beginning to shift.

Big Tech drove much of the returns—+24%, +23%, and +17% over the past three years.

But that dynamic is changing.

The 100-day correlation between the Magnificent 7 and the equal-weight S&P 500 has fallen to -0.27, meaning large tech companies and the average stock are now moving in opposite directions.

The Magnificent 7 have begun to underperform the average stock over the past three months.

This is often what markets look like during transition periods—when leadership narrows, rotates, and uncertainty builds beneath the surface.

 

Why This Matters

Individually, none of these data points are definitive.

But together, they begin to form a pattern:
• Slowing growth
• Sticky inflation
• Weakening housing activity
• Shifting market leadership

These are the types of “cracks” that don’t always show up in headlines—but tend to matter over time.

Because more often than not, it’s not the obvious risks that cause problems—it’s the ones building quietly beneath the surface.

It may also be a good time to reassess your risk tolerance—particularly as the current environment may look different from what investors have grown accustomed to.

*Some of these numbers have slightly changed from when this article was first written.