Market Thoughts: Everyone's a winner?

Markets wobbled through early November then roared back. We’re bouncing around the high end of the recent trading range. Focus in the weeks ahead shifts to position squaring as investors lock down what they hold, closing out the year.

Futures have effectively priced in a rate cut from the Fed on December 10th. The European Central Bank (ECB) and Bank of England (BoE) follow with their policy meetings on December 18th. The Bank of Japan (BoJ) closes out the ‘big four’ on December 19th. The ECB likely stays on hold, while the BoE cuts. The BoJ is expected to raise policy rates to curtail currency weakness.

The dollar’s been a bit wobbly thanks to expected Fed easing. The yen has slowed it’s decline. I don’t believe a ‘one and done’ rate hike from the BoJ accomplishes enough to spark a sustainable currency rally. I imagine it takes several.

The Fed remains the center of gravity and influence on current risk-taking. The macro landscape continues to argue for a gradual move lower in policy rates next year, regardless of who the next Fed Chair is. Pundits continue to argue otherwise. Cue the spooky music.

Bond vigilantes and risk takers alike will flex their opinion about the next Fed Chair when we know who it is. Also, if Jay Powell decides to serve out the remaining tenure of his term or follow tradition and resign. If he resigns, expect headline drama to again swirl as the administration looks to fill his seat.

The path of least resistance for markets seems higher as we look into next year. Pundits are racing to revise their 2026 forecasts for the S&P 500. Funny how that works. To grab attention you need to be the analyst with the highest (or lowest) price estimate. Influencers racing to rack up likes. Likes are fast fleeting. And so it goes.

Equity valuations are high. Expensive for the right reasons, but expensive. Analysts are struggling to spin pockets of the market reasonably priced to big tech, the force driving markets – like value and small cap stocks or slices of emerging and developed markets.

You need to look at valuations relative to their own history as well as to other markets. Both matter. Either one—on its own—can be deceiving. As I look across global markets, no risk asset stands out as particularly inexpensive. Those that do appear undervalued for a reason. Value traps in the making?

Alan Greenspan decried “irrational exuberance” of investors chasing tech stocks in 1996. He was right but early. The equity market pressed higher until it began to wobble mid-2000. The toughest emotional trade to miss is being out of a rising market. You begin to feel foolish. When a market breaks there’s a shared cloak of misery. Everyone suffers.

I’m smart enough to know I have no idea the variable path of markets ahead. Equity markets are called a random walk for a reason. I expect greater volatility simply because valuation levels are extended. Three year returns have been extraordinary. That’s worth noting.

Investors with gains get twitchy the higher markets climb. You only need to look at the first few weeks of November’s sell-off for a taste of what ‘the scaries’ look like. As a rational observation, I think investor twitchiness continues to circle.

To borrow from the band Hot Chocolate: “Every 1’s a Winner”... or aspires to be. For the music lovers, Ty Segall’s version of that song is amazing. The opposite of winning is equally true: no one wants to be a loser. Or at least be called out as one.

For the past five years dip buyers have been rewarded. There are investors in the market that only know that experience. The same was true in the late 1990s. What keeps me up at night? The small cracks we’re beginning to see in lending, not current equity valuations.

It’s disingenuous to say all credit markets are in trouble. They’re not. Public and private alike. I’m keeping a close eye on slowly rising defaults and bankruptcies. Bad loans have been made. It happens late in a market cycle. Creditors stop rationally pricing risk, focusing only on promised returns.

What’s the trick? Determining if (how) credit markets create a systemic shock. Shadow banking, true to its name and nature, is opaque. I don’t like things I can’t measure. I say all the above to temper overextending risk. Diversification matters more than ever. So do return expectations ahead.

I don’t believe we’re at a point to be underweight risk. I’m guardedly optimistic. That said, relative to this year’s returns, expectations for next year need to be managed down. The higher markets climb the twitchier investors get. Everyone’s a winner?

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 12/04/25.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.