Market Thoughts: Greed is good until it isn’t

“Greed is good” remains the mantra as Wall Street spins fear of missing out into year end. At particular moments in time, contrarians sound ‘smarter’ than optimists. Going against the grain makes you stand out. Contrarians tend to be pessimists. Haters gonna hate.

A good investor has an inherent mix of optimism and pragmatism. Optimism gets you up each day, looking for the next opportunity. Pragmatism grounds the optimism in reality. Factoring in relative valuation levels and where we are in the macro cycle. Cynics never invest.

There are pundits who hold a single market call they repeat on the hour. Buy, buy, buy. Or sell, sell, sell. They appear brilliant in the moment… if they catch a market pivot. A good example this year? Those crying for imminent recession. The recessionistas.

Recessionists are morphing into miserabilists as markets move higher. At the risk of stating the obvious, markets are frothy. Valuations are full. Bubbles are forming. The ‘trick’ to an investment bubble is recognizing the driver. Adrenaline and pure greed? Or greed encouraged by strong micro and macro factors. At the moment it’s the latter.

The peril of burgeoning bubbles is believing you can time the burst. If pure greed’s the driver, a bubble progressively becomes more obvious. That doesn’t help you time when it pops. If fundamentals are creating the froth it’s more deceiving. Markets can run farther.

Low corporate default rates and earnings are encouraging investors to believe markets move higher. They will until they don’t. Equity markets are being led higher predominantly for the right reasons. Fundamentals. A lot of good news is already in the price.

Earnings are about to take center stage. Forecasts for third quarter earnings growth in the U.S. are penciled in around 7-8%. Should we see another quarter of low double digit growth, exuberance can ramble on.

We’ve trimmed overweights to extended credit, rotating into equities. Each is expensive. I believe the relative upside favors stocks if markets melt up. In steady state, total returns may prove around the same given valuation levels. That’s a ‘wet finger in the wind’ observation. Nothing more.

We’ve held onto some of our credit overweight because of carry. The absolute yield is attractive. The pragmatist in me grounds holding on because of the strength of corporate balance sheets. Credit quality across investment grade and extended credit is sound. The cracks we’re seeing are with subprime borrowers. Something we’re paying close attention to.

Across portfolios we continue to diversify, not concentrate, the risks we’re taking. We’ve remained procyclically positioned throughout the year. I have no interest chasing after markets. I say that with the starting point of being fully invested. For those sitting on the sidelines, Wall Street’s siren cry weighs heavy. The pain trade for markets seems higher.

The topic du jour… will AI prove to be a bubble? We won’t know for several years. The money being invested is predominantly coming from free cash flow. Given earnings strength, today’s optimism seems justified. The proof statement? Whether AI will markedly improve operating leverage.

The optimist in me believes AI progressively proves a game changer. A boost to productivity across sectors, financials being one of many. The pragmatist in me keeps asking how long will it take? And for those doing the actual spending, will they generate a sufficient return on investment?

It will all come down to patience and price. Greed is good until it isn’t.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 10/09/25.

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.