Market Thoughts: The bottom line

Big Audio Dynamite (BAD) was formed in 1984 by Mick Jones. Right after the Clash threw him out of the band he’d co-founded. BAD’s sound infused dance, funk, soul and hip-hop. They layered it on top of the Clash’s blend of reggae, post-punk and new wave. BAD’s first album demanded attention.

“The Bottom Line” is the fourth song on that album, This is Big Audio Dynamite. It popped into my head as I sat down to write this week’s note. I made a point in my last note of arguing that, while I believe valuation levels are ahead of themselves, a pause to grow into future earnings can set markets up to press higher.

That’s our base case as we model the macro and micro outlook. It’s clearly reflected in current pro-cyclical positioning, both in multi- and single-asset portfolios. Rational exuberance. That said, exuberance is due a pause. Multiples have so far been doing the heavy lifting.

Benjamin Graham said markets in the short run are voting machines. Investors get excited and chase prices higher. Money, money, money, money. Money! They’re weighing machines in the long term; valuations ultimately matter most. Gravity reinforced.

I pay attention to exuberance when excitement swirls. A comment I read this week stood out: markets are in the ‘early stages’ of the party. My mind did a quick flashback to Chuck Prince: as long as the music’s playing, you’ve got to get up and dance.

Fair enough if you’re swaying to Big Audio Dynamite. Not so much if you’re taking your eyes off fundamentals. Gravity can be unforgiving. The great equalizer. Prince’s folly? Adding that he was still dancing as the financial crisis began to unfurl.

We’re not in a similar market moment. Likewise, I don’t believe big tech is sitting at the precipice of the rollercoaster ride down we saw beginning in late 2000. In aggregate, markets ahead should be driven by earnings growth and stable corporate balance sheets.

There are nascent pain points showing up under the surface. They’re important to pay attention to. Nothing precludes a shock to the system that rhymes with something more than a ‘healthy’ correction. Never underestimate ardent avarice. It ends badly.

Markets are wobbly for the right reasons. Investor caution stems from awareness big tech exceptionalism is powered by earnings. Cash money, as the expression goes. Trembles acknowledge robust valuation levels. Hard-earned, but ahead of themselves. Having seen multiples expand, returns ahead will—hopefully—be driven by earnings. That would help extend the current cycle.

The cry for a correction is all well and good in theory. In practice, no one likes to lose money. Depending how big a sell-off, Graham’s voting machine can as voraciously chase prices lower as higher in a run for the exit. Never underrate rational exuberance, or fear, becoming irrational.

What matters? How you choose to respond to greed or fear as momentum builds. We’re modestly overweight risk assets. We hold calibrated overweights across global big tech, financials and health care. We have an overweight to the U.S. equity market funded from core bonds. And while we’ve trimmed back positions, we’re overweight global credit for the carry. We expect credit spreads can widen.

We’re holding on through the turbulence for a simple reason. All else equal—it rarely is—we’re better buyers into a correction. That view’s informed by an outlook that fundamentals are well grounded. If the facts change, we’ll pivot accordingly.

Short-term investment views need to calibrate in real time, based on what’s happening in markets and the economy. Cautious optimism today is warranted. For traders, enjoy the broadening opportunity set should volatility move higher. We’ll lean further into risk near the bottom line.

“When you reach the bottom line / The only thing to do is climb / Pick yourself up off the floor / Don’t know what you’re waiting for.” Big Audio Dynamite

My next note will be the week after Thanksgiving. It’s a favorite Madigan family holiday. A moment to pause and give thanks… celebrating the most important gifts given. Family and friendship. The joy of living life as the great world spins, even when dizzying.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 11/20/25.

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.