Market Thoughts: Stuck in a moment…

Investor sentiment continues to wobble, as exuberance for ‘everything AI’ curtails. We’re seeing that clearly in distressed and lower-quality extended credit. CoreWeave by way of example.

The repricing we’ve seen in credit is rational risk management. When investors don’t check themselves on valuations, things can get bumpy. It doesn’t feel we’re through this bout of turbulence. Credit markets continue to rumble. I hope I’m proven wrong. Hope isn’t an investment strategy, action is.

Coming into October, our equity allocations drifted higher. We trimmed back that drift to keep risk aligned with a more cautious near-term outlook. As I’ve mentioned before, in late August we also shifted some of our full-curve core bond exposure to shorter duration positions in certain portfolios.

Each of those rotations leaves us well-positioned to take advantage of more pronounced volatility, should we see it. We’ve been playing a bit more defense in our tactical asset allocation. It strikes me as prudent, given rising uncertainty.

On a forward looking basis we remain positive on the global market outlook. We’re constructive on earnings. But the durability of the AI-infrastructure trade is being questioned. Sentiment is shifting from ‘build it and they will come’ to ‘show me the money.’ That’s healthy.

Markets are driven by individuals. People, by nature, are emotional beings. This year has offered a barrage of positive and offsetting negative headlines. The positives include strong earnings and resilience of the consumer in the face of rising inflation. By extension, the stability of growth as well.

Negatives have anchored on what continues to be self-inflicted geopolitical pain... tariffs and war. I think the surprise to economists and markets alike has been how contained inflation expectations have been. As central banks ready themselves to again raise policy rates, that restraint may waver.

Central bank tightening and the weak breadth underlying current equity markets offer additional headwinds. That’s not said to be alarming. Rather, to flag the fact that market ‘scaries’ can be with us a while longer.

If there is ever ‘easy money’ to be made, it strikes me that moment’s behind us. It’s been an incredible market run. The sprint higher we’ve seen in risk assets—with hurdles along the way—is shifting down a gear (or two) in verve. Greed restrained may prove more persistent.

Risk positioning and market internals remain supportive. We’ve not seen a ‘rush to the exit’ risk reduction by retail or institutional investors. Geared positions appear to have been trimmed. That’s helped keep overall volatility relatively behaved.

That said, across equity and credit markets there’s been quite a bit of disruption below the market surface that continues. Investors are re-repricing their relative perception of risk. Markets held captive to degrading realpolitik and rising interest rates. 

Investors are coming to terms with the cost of capital staying higher for longer. That’s an observation about government bond yields and, by extension, credit markets. Recent flow of funds show a bit of nibbling around the edges by investors in each. Absolute yields looking more attractive.

I’m hyper-focused on the bond market. That’s been the case for a while now. That’s especially true for credit, now under pressure. We’ve seen investors rightfully pull back the risk reins as confidence begins to waver. Stuck in a moment…

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 10/22/26

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.