Markets turn toward prospects of rate hikes for the first time this cycle… OpenAI kills Sora as AI monetization falters… Private credit investors race for the exits… and why it’s the same story
Last Friday, futures markets issued a warning that would have seemed almost unthinkable six months ago…
an average to lift.
According to CME Group’s FedWatch tool, the probability of a rate increase by the end of the year crossed the 50% threshold for the first time last Friday. This is a stunning reversal from the interest rate cut narrative that has dominated market thinking for the better part of two years.
Now, the odds of a rate hike have dropped to roughly 10% as I write on Monday morning, but this is still a massive shift in market sentiment.
What has changed?
Three things, arriving in quick succession.
What’s behind a potential interest rate hike?
First, global crude oil prices exceeded $110 per barrel as the Iran war continued. As I write this article, Brent crude oil is trading at $114. This results in an energy cost shock in an economy that does not need higher prices.
Second, the Bureau of Labor Statistics reported that import prices jumped 1.3% in February – the largest monthly increase since March 2022 – while export prices rose 1.5%, the largest increase since May 2022.
Third, the Organization for Economic Co-operation and Development (OECD) sharply revised its US inflation forecast upward to 4.2% for this year, well above the Fed’s own forecast of 2.7%.
Put it all together, and it’s an uncomfortable scene…
These inflationary pressures come at the same moment when the probability of recession is increasing. Moody’s Analytics estimates the probability of a contraction over the next 12 months at about 50%. Goldman Sachs raised its forecast to 30% last week. EY Parthenon and Wilmington Trust put odds at 40% or higher.
This combination is high inflation and The risk of recession rises simultaneously – the classic definition of stagflation. It is precisely this scenario that puts the Fed in an almost impossible position.
Lowering interest rates to protect the economy exposes you to the risk of higher inflation. Raising interest rates to contain inflation runs the risk of pushing a fragile economy into deflation.
The Federal Open Market Committee meets on April 28-29. As I write this article, CME Group’s FedWatch tool specifies only a 2.6% probability of a rate hike at that particular meeting – so a near-term move remains unlikely.
But this shift in expectations from downward to upward is huge. It’s important for your portfolio and every asset class — especially for one corner of the market that was built on the assumption that interest rates would continue to fall. More on that in a moment.
But first, let’s cover a story from last week that deserves a closer look than many investors have given…
The AI industry just said something very important to investors willing to listen
Just six months after launch… and just three months after signing a $1 billion deal with Disney… OpenAI has shut down Project Sora, its video generation model.
The move sent entertainment partners and the AI community searching for answers.
Now, you could read this as a simple corporate pivot – a company sharpens its focus before its IPO, killing side projects to focus on what pays.
But regular digest Readers will remember what we discovered together in this book Last Thursday digest When we asked a specific question…
If the world is paying billions to build AI, but consumer-facing AI software companies are struggling to repay their loans, what does this tell us about how much companies and consumers will actually pay for AI?
Sora’s closure is a concrete answer, and it’s not encouraging.
What the numbers actually showed
according to ListSora’s downloads fell nearly 75% from its peak in November just months after its launch.
OpenAI’s management reportedly realized that it was burning an enormous amount of computing power — and burning through cash — to generate very little in return. Unit economics simply did not work.
Here’s MAXC.com with some additional numbers:
After Sora launched in September 2025, downloads exceeded 1 million in the first 10 days…
However, this glory was short-lived, as downloads fell by 32% month-on-month in December, and continued to fall by 45% in January 2026, with user spending also continuing to decline…
Meanwhile, Forbes Reported that OpenAI was spending $15 million – daily – To turn it on.
From Bill Peebles, head of Sora at OpenAI, last October:
The economy is currently completely unsustainable.
The result? Goodbye, Sora.
And this is exactly the divide we described last week between what we called the “safe elite” of AI and everything else. The infrastructure layer—chips, data centers, and power management—generates real, captive revenues today. Hyperscalers are spending on decade-long horizons, and that money is already flowing.
But the consumer-facing application layer is where the economics remain unproven at best… troubling at worst.
Sora is now Exhibit A.
But this is more than just one company’s story
Last week, media outlets reported that Walmart had abandoned its ChatGPT shopping integration after the model consistently failed to improve sales.
Meanwhile, earlier this month, Reuters He suggested that Nvidia reconsider its commitments to OpenAI.
and Bloomberg It was reported that Oracle canceled its planned data center expansion with OpenAI.
These stories could all be isolated data points – but as wise investors, we have to realize that we may also be seeing a pattern.
To be clear: we are not declaring the end of AI. The technology is real, the productivity gains in specific areas are real, and will continue to build for years. But the growing list of similar stories shows that the gap between building AI and monetizing AI is wider and more stubborn than the market assumed.
Investors who will become profitable will not abandon AI trading, but will move to the already working part of the trade. This means one thing…
We need to follow the money, not the narrative.
Right now, money is flowing to the physical layer of AI… but we’re seeing increasing evidence that it’s not yet flowing to the application layer at scale.
We will continue to track this closely. But learn about the warning Sora is sending. It’s not a fire alarm, but a signal that informed investors will take it seriously… while the average investor reads the press release and moves on.
Sora’s story isn’t the only place where this early warning of AI appears
If we think of the closing of Sora Bank as an unexpected crack in the ice, what happens in private credit is the sound of that crack spreading.
We’ve tracked this story here at digestBut here’s the short version to make sure we’re all on the same page…
In recent years, billions of dollars in private credit have flowed to software companies on the assumption that revenue from AI-driven subscriptions would make them safe and reliable borrowers.
This assumption is now beginning to crack, and the latest data shows that the pace is accelerating.
New numbers from Morningstar Directquoted from Bloomberg last weekThey show that flows into open-ended private credit funds fell by more than a third in the first two months of 2026.
It collapsed from $1.8 billion during the same period last year to just $1.1 billion. February was one of the weakest monthly flows readings since August 2024.
The reason, according to Mara Dobriscu, senior director at Morningstar, is straightforward: Investors are nervous about private credit funds’ exposure to software-as-a-service (SaaS) companies — exactly the layer of consumer-facing AI applications we’ve been referring to.
Withdrawal requests were so heavy that major institutional fund managers – including… Ares Management (Ares) and Apollo Global Management (APO) – They had to make withdrawals, which prevents investors from withdrawing their money.
from Bloomberg:
In some cases, investors got less than half of what they asked for.
They must then resubmit applications in subsequent quarters, without guaranteeing full payment if recoveries remain high.
And this is where the Fed story we led today becomes directly relevant…
Beware of a rustic wall
Much of the debt held within these private credit funds had arisen when interest rates were near zero – designed to fit a world where borrowing was cheap and refinancing easy.
As a Raymond James analyst pointed out last week, the risk extends beyond AI software — it affects any highly leveraged, interest-rate-sensitive borrower, whose business model is built for a world of cheap money.
This world is now in question.
If the markets are right we will be entering 2027 higher And with higher interest rates, the roughly $1.2 trillion in debt maturing between 2027 and 2029 faces a significantly more difficult refinancing environment than any model established when those loans were written.
Here’s a visual of the size of the maturity wall we’re headed towards…
Source: Apollo
For borrowers who are barely covering interest payments at today’s rates, rising interest payments in the coming months/years will pose a serious problem.
Bottom line: The “roll and pretend” strategy that has kept many of these loans off the default list works when you can refinance at similar or lower rates. It breaks down when you can’t.
We’ve tracked the growing problems in private credit alongside legendary investor Louis Navellier, editor Stock breakout
Lewis has been warning about private credit pressures since mid-2024 – and his concerns have increased dramatically in recent weeks.
In fact, it is warning investors about a specific date – June 30, 2026. This is the date by which business development companies (BDCs) and private trusts must file their semi-annual reports and measure their holdings at fair value.
This means there are no internal estimates. There is no “extension and pretense” for fragile loans. Just a clear calculation of what these loans are actually worth.
If the pressure building beneath the surface is as great as early signals indicate, this deadline could be the moment when hidden losses become visible with market-moving consequences.
Lewis compiled a A complete presentation explaining what he sees – And more importantly, how investors can protect their portfolios and profit potential as this story develops.
Click here to watch Lewis’ presentation before this story gets bigger.
wrap
Three stories. Three different corners of the market. One key message…
The easy-money assumptions that have been driving the past several years – cheap interest rates, abundant credit, and AI monetization “just around the corner” – are being stress-tested one at a time.
How they hold up will determine which investors step up and which ones wish they had paid more attention.
We will continue to track all of this with you here at digest.
I wish you a good evening,
Jeff Remsburg
