Ben Griffiths: Beneath the rally, the market is fracturing

After a strong start to the year, markets entered the March quarter in familiar territory, pushing to fresh highs and extending a rally that has defined the past few years. By quarter end, however, the picture had become more complicated.

In a recent note, Ben Griffiths of Eley Griffiths Group argues that while headline indices continue to suggest resilience, the underlying drivers of markets are evolving in ways that investors cannot afford to ignore.

“Decades of managing money have taught me many things… one of the most useful is to avoid overintellectualising a crisis and allow the market to tell the story,” Griffiths writes.

What the market is saying right now is less straightforward than it has been.

From shifting rate expectations to narrowing market leadership and emerging stress in credit, the signals are becoming more mixed. The result is a market that may still be trending higher, but one where the path forward is unlikely to resemble the recent past.

Geopolitics, oil and what price action is really saying

Geopolitics returned to the foreground during the quarter, most notably through escalating tensions between the United States and Iran. The reaction was immediate, with crude oil staging an intraday surge of roughly 30%, accompanied by a pullback in equities.

Griffiths places less emphasis on the headlines and more on how markets responded once the initial shock passed. In his view, the failure of oil to sustain a break above key levels offers a more useful signal than the spike itself.

“This is proving useful in the case of the current crisis in the Gulf,” he notes, pointing to crude’s inability to break through US$120 per barrel despite increasingly aggressive commentary.

That price behaviour, in Griffiths’ opinion, suggests the market is not yet pricing a sustained supply shock or a structural shift in the energy complex. Equity markets appear to have reached a similar conclusion, with US stocks beginning to recover once oil failed to extend higher.

Inflation and rates reassert themselves

While geopolitical developments drove short-term volatility, Griffiths highlights inflation and interest rates as the more persistent forces shaping markets.

US break-even inflation rates moved higher through the quarter, complicating the Federal Reserve’s easing trajectory. Fewer rate cuts, and later in the cycle, represent a meaningful shift from the assumptions that have supported risk assets in recent years.

In Australia, the Reserve Bank of Australia has already begun to respond, lifting rates twice in quick succession. Markets are increasingly entertaining the prospect of additional hikes in the months ahead.

Griffiths views this as part of a broader repricing that is still underway. 

“Markets repriced the US interest rate trajectory… fewer cuts with timing delayed,” Griffiths notes, highlighting just how quickly expectations have shifted.

The post-GFC environment conditioned investors to expect policy support and falling rates; that backdrop is now less certain, and asset prices are adjusting accordingly.

Pressure points: private credit and AI-driven disruption

Beyond macro settings, Griffiths points to emerging pressure points that are beginning to surface across markets.

In credit, concerns are building around the health of parts of the US private credit ecosystem, particularly business development companies. Issues relating to pricing spreads and redemption restrictions are drawing closer scrutiny from investors.

Griffiths points directly to “growing concerns relating to the health of private credit markets,” particularly around pricing and access to liquidity.

At the same time, the technology sector is contending with a different form of disruption. The release of new AI tools has extended competitive pressures into industries previously considered relatively insulated, including legal publishing, accounting, and financial services.

Griffiths describes this as a continuation of the “tape-bombs” that have already disrupted segments such as SaaS and real estate, with the impact now spreading more broadly across the economy.

A narrowing market, masked by strong indices

One of the more notable features of the quarter has been the divergence between headline index performance and underlying market breadth.

In Australia, strength has remained concentrated in the largest companies, with the S&P/ASX 20 continuing to outperform. Banks and major resource names have absorbed a disproportionate share of capital flows, reinforcing the market’s reliance on a narrow leadership group.

Griffiths notes that “the leaders have been the market bulwark,” a dynamic that has persisted even as broader participation has weakened.

Griffiths contrasts this with the experience of smaller companies, where participation has been far weaker. Measures of breadth, including the proportion of stocks trading above key technical levels, have deteriorated meaningfully from late 2025.

While there have been tentative signs of improvement, the broader picture remains one of fragility beneath the surface of a market that, at the index level, still appears robust.

Commodities: correction, correlation and what history suggests

The quarter also saw a sharp correction across precious metals, driven largely by shifting expectations around US interest rates and a stronger US dollar.

Gold fell 20% from its highs, with silver and platinum declining even more aggressively as positioning unwound and buyers stepped back.

Griffiths frames this within a broader commodity context, noting that while volatility has increased, there are signs that price action is beginning to broaden beyond a single leader.

Historically, periods of rising correlation across commodities have coincided with the early stages of cyclical upswings, often followed by further gains over subsequent months. Griffiths points to international reserves and global liquidity conditions as potential supporting factors in this process.

The outlook: a market still rising, but less forgiving

Despite his concerns around the quality of recent price action, Griffiths does not dismiss the strength of equity markets outright.

“There can be little doubt as to the veracity of the S&P500 return move to its historic highs,” he writes, noting that sellers have, for now, remained largely absent ahead of earnings season.

Consensus expectations remain constructive, with earnings growth still expected to come through strongly. Markets, at least for now, are prepared to give them the benefit of the doubt.

Griffiths frames the recent move as a sharp, liquidity-driven correction within an ongoing uptrend, rather than the start of something more sinister. The key variable from here is how policy responds.

“It’s now a game of how quickly and deeply the FOMC provides rate accommodation,” he says.

For Australian investors, the outlook is less straightforward. Domestic markets are tracking the global tone, although capital remains tightly concentrated and increasingly sensitive to local conditions, including monetary policy, energy pricing, and the health of the consumer.

Griffiths returns to a principle that has guided him over decades in markets: avoid overcomplicating the narrative and focus on what price is actually signalling.

“Allow the market to tell the story.”

Right now, that story points to a market that is still intact, still rising, but increasingly selective and far less forgiving than the one investors have grown used to.

To read the Encyclical March Quarter in full, click here.