Persistent fiscal pressures, evolving geopolitics, and rapid technological change are reshaping global markets. For investors, the challenge is not simply to react to short-term volatility, but to discern the underlying signals that will define the months ahead. In speaking with leaders and experts across Carlyle about the current investment environment, six key developments stand out:

1. A System Under Strain
   
   Carlyle Co-Founder and Co-Chairman David Rubenstein pointed to the US government shutdown and its broader implications for fiscal policy. Since a Justice Department ruling in 1980 requiring federal agencies to close if appropriations are not passed on time, the government has shut down 11 times, reflecting ongoing gridlock and structural challenges in the budget process.
   
   “The US now carries roughly $37.4 trillion in public debt and continues to add about $2 trillion annually,” Rubenstein observed. “This dynamic isn’t new, but it underscores the need for a long-term solution that reconciles revenue with spending.”
   
   While markets have largely adapted to recurring shutdowns, Rubenstein noted growing international concern about US fiscal sustainability and its potential effects on the US dollar. The US currency has fallen about 11% against a basket of major currencies this year, reflecting both cyclical shifts and policy choices that prioritize exports over currency strength.
   
   Despite near-term volatility, Rubenstein underscored the resilience of the US economy and the enduring role of the dollar as the world’s primary reserve currency.
2. Cautious Optimism in the Middle East
   
   In terms of global security, Admiral James Stavridis, Vice Chair of Global Affairs and Partner, looked to the evolving situation in the Middle East, noting what he described as “cautious optimism” around efforts to secure a ceasefire and the release of hostages in Gaza. He placed the odds of a breakthrough at roughly 60%, driven by an emerging coalition of Arab states and active US diplomatic engagement.
   
   “The willingness of the Arab states to fund reconstruction and provide peacekeeping support represents a major shift,” Stavridis said. “If this holds, it could stabilize a critical region and limit Iran’s influence for years to come.”
   
   In contrast, he warned that if talks fail, remaining Hamas forces may continue to resist, prolonging instability. He added that Iran’s regional proxies have been significantly weakened, offering an opening for broader diplomatic progress.
3. Prolonged Stalemate in Ukraine
   
   On Russia and Ukraine, Stavridis described a “stalemate defined by attrition,” with both sides facing high costs and limited progress. He welcomed recent discussions about providing longer-range weapons such as Tomahawk missiles to Ukraine, noting that such capabilities could alter the strategic balance and encourage renewed negotiations.
   
   “This conflict has been one long escalation,” he said. “But history shows that pressure, both economic and military, can bring even entrenched adversaries to the table.”
   
   He also urged European governments to take a more assertive role, noting that collectively the European Union represents the world’s second-largest economy and defense budget.
4. Balancing AI Investment and Policy Shifts
   
   Head of Global Research & Investment Strategy Jason Thomas highlighted the intersection of two major forces: the AI investment boom and the Trump administration’s net-zero immigration policy, which marks a sharp contrast with prior years.
   
   Net immigration has declined from 2.7 million in 2024 to near zero in 2025¹, removing a key source of labor force growth. This shift, combined with tariffs and changing trade dynamics, is complicating the Federal Reserve’s policy calculus.
   
   Thomas estimated that about 0.7% of US GDP currently stems from AI-related capital spending² -primarily data centers, hardware, and energy infrastructure. However, he cautioned that market enthusiasm may have outpaced fundamentals.
   
   “Roughly a quarter of U.S. market capitalization is now tied to AI-exposed companies³,” he said. “While this cycle differs from the dot-com era because it’s funded by free cash flow, valuations assume exceptionally high future returns.”
   
   Looking ahead, Thomas anticipates at least one additional rate cut before year-end, citing slowing job growth and moderating inflation. Still, he suggested the Fed may adopt a broader mandate in 2026 that includes stabilizing public finances by managing Treasury borrowing costs.
5. Constructive Conditions for Issuers in Capital Markets
   
   Matthew Savino, Global Head of Carlyle’s Capital Markets team and Partner, described a constructive environment across global capital markets, driven by expectations of lower rates and stable growth.
   
   “Risk appetite is firmly on,” Savino said. “We’re seeing narrow credit spreads, robust new issuance, and healthy demand across both equity and debt markets.”
   
   He pointed to renewed IPO activity, approximately $30 billion year-to-date, exceeding 2024 levels, with average first-day performance up about 30%. Sponsors, including Carlyle, are increasingly pursuing dual-track monetizations as investor demand for new listings remains strong.
   
   In credit, new issue spreads for single-B rated loans are at their tightest since 2008, creating refinancing opportunities for portfolio companies. Savino believes both M&A and capital markets activity may remain elevated through early 2026 as rate cuts support confidence and dealmaking.
6. Selectivity and Stability in Credit Markets
   
   Lauren Basmadjian, Global Head of Liquid Credit, underscored continued strength in private credit portfolios despite tightening spreads.
   
   “We’re seeing strong borrower performance and healthy cash flow even after a prolonged period of elevated base rates,” she said. “With policy rates down roughly 150 basis points and spreads tighter, credit quality has held up better than expected.”
   
   Carlyle’s collateralized loan obligation (CLO) platform now monitors over 580 U.S. companies and 200 European borrowers, providing a comprehensive view of the below-investment-grade economy. While Basmadjian noted an increase in out-of-court restructurings earlier in the year, defaults have since trended lower as financing conditions improve.

The Bottom Line: Resilience Amid Complexity

Despite uncertainty, market fundamentals remain broadly stable, supported by disciplined underwriting and persistent demand for private capital. As Chief Executive Officer Harvey Schwartz observed, the current environment requires steady focus and flexibility:

“Across all asset classes, what we’re seeing is resilience - markets adapting to new policy frameworks, new technologies, and new geopolitical realities,” Schwartz said. “Our role as fiduciaries is to remain disciplined, thoughtful, and responsive as these forces evolve.”

¹ Carlyle Analysis; US Census Bureau, American Enterprise Institute
² Carlyle Analysis of Proprietary Portfolio Company Data; Bureau of Economic Analysis
³ Carlyle Analysis; Bloomberg, S&P Cap IQ