Are we in a Market Bubble? The ghosts of Octobers past failed to spook a market still in love with its own reflection. Corporate earnings stayed strong, AI mania refused to cool, and the Federal Reserve gave investors yet another reason to celebrate with a second straight rate cut.
The result: another month of gains — 2% for the S&P 500, even more for the Nasdaq, and a sixth consecutive monthly advance for the Dow, its longest winning streak since 2018.
The result: another month of gains — 2% for the S&P 500, even more for the Nasdaq, and a sixth consecutive monthly advance for the Dow, its longest winning streak since 2018.
But for all the cheer, a familiar question is creeping back into the conversation: Is this a bubble? Nvidia’s market cap surged past $5 trillion, larger than every economy on Earth except the U.S. and China. AI-linked capital spending is running at a pace no one can model, valuations are stretching toward dot-com territory, and even cautious managers are conceding, “If this is a bubble, it’s a good one,” as Blue Whale’s Stephen Yiu told CNBC.
Still, the market’s tone remains oddly self-assured. Earnings are beating expectations, inflation is cooling toward 3%, and the Fed has eased its foot from the brake to give markets room to run. For now, investors see policy support, corporate momentum, and a technological revolution all moving in the same direction — and are choosing to ignore how fragile that alignment might be.
Fed Eases, With Caveats
Yes, the Federal Reserve cut rates another quarter point. Chair Jerome Powell, however, threw in a disclaimer: a December cut was “not a foregone conclusion.” Divisions inside the Fed — one governor wanted a larger cut, another none — highlighted growing uncertainty.
Still, markets heard what they wanted. Two cuts in two months and a promise of flexibility were enough to extend the rally.
Earnings Still the Anchor
Big Tech again carried the load. Amazon jumped on a 20% surge in cloud revenue, Apple topped expectations with a bullish holiday forecast, and Alphabet held firm. Even Netflix got a pop from a 10-for-1 split. Brief rotations into value names followed Meta’s and Microsoft’s post-earnings slides, but the shift proved fleeting. AI spending — still measured in hundreds of billions — remains the market’s gravitational center.
Victoria Fernandez of Crossmark Global put it bluntly: “We’ve seen herd behavior… every investor is talking about AI stocks. Valuations have come down from their highs, but fundamentals can only be ignored for so long.”
Yes, there are signs of froth, said Goldman Sachs managing director Bobby Molavi, “But fighting the massive flow of capital until the long-term AI winners and losers are decided is pointless.”
Trade Truce, Uneasy Peace
Late in the month, Presidents Trump and Xi agreed to a one-year trade truce, trimming tariffs and pausing China’s rare-earth export curbs. The handshake soothed nerves but solved little. “The Trump–Xi ceasefire is less a peace treaty than a timeout — and markets are treating it as such,” one strategist observed.
Looking Ahead
The S&P 500 trades above 22× forward earnings, credit stress is bubbling in private lending, and the Fed’s unity is fraying. Yet profits are strong, liquidity abundant, and seasonal tailwinds point toward a Santa rally. As CNBC’s Mike Santoli noted, “The core tenets of the bull case remain intact — insatiable AI demand, a Fed easing by choice, and a market that still believes in its own story.”
Final Word: October proved that fear alone can’t stop this market. November will test whether euphoria can.
And For What It’s Worth…
An Arizona cow, born and raised for slaughter, made headlines this summer after bolting from her handlers and galloping through traffic in the blistering heat. After a brief police chase, she was corralled and returned to what looked like her sad destiny.
But the story didn’t end there. Animal rescuer Aimee Takaha saw the video, raised $2,500 in 24 hours, and bought the cow’s freedom.
“She had that fight for freedom,” Takaha said. “I thought she’s so remarkable.”
“Mootilda,” as the cow is now known, has found her forever home at the sanctuary — roaming free with her farmyard companions.
Investors take note: as Warren Buffett — and now Mootilda — have shown, sometimes breaking with the herd can make all the difference.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
Still, the market’s tone remains oddly self-assured. Earnings are beating expectations, inflation is cooling toward 3%, and the Fed has eased its foot from the brake to give markets room to run. For now, investors see policy support, corporate momentum, and a technological revolution all moving in the same direction — and are choosing to ignore how fragile that alignment might be.
Fed Eases, With Caveats
Yes, the Federal Reserve cut rates another quarter point. Chair Jerome Powell, however, threw in a disclaimer: a December cut was “not a foregone conclusion.” Divisions inside the Fed — one governor wanted a larger cut, another none — highlighted growing uncertainty.
Still, markets heard what they wanted. Two cuts in two months and a promise of flexibility were enough to extend the rally.
Earnings Still the Anchor
Big Tech again carried the load. Amazon jumped on a 20% surge in cloud revenue, Apple topped expectations with a bullish holiday forecast, and Alphabet held firm. Even Netflix got a pop from a 10-for-1 split. Brief rotations into value names followed Meta’s and Microsoft’s post-earnings slides, but the shift proved fleeting. AI spending — still measured in hundreds of billions — remains the market’s gravitational center.
Victoria Fernandez of Crossmark Global put it bluntly: “We’ve seen herd behavior… every investor is talking about AI stocks. Valuations have come down from their highs, but fundamentals can only be ignored for so long.”
Yes, there are signs of froth, said Goldman Sachs managing director Bobby Molavi, “But fighting the massive flow of capital until the long-term AI winners and losers are decided is pointless.”
Trade Truce, Uneasy Peace
Late in the month, Presidents Trump and Xi agreed to a one-year trade truce, trimming tariffs and pausing China’s rare-earth export curbs. The handshake soothed nerves but solved little. “The Trump–Xi ceasefire is less a peace treaty than a timeout — and markets are treating it as such,” one strategist observed.
Looking Ahead
The S&P 500 trades above 22× forward earnings, credit stress is bubbling in private lending, and the Fed’s unity is fraying. Yet profits are strong, liquidity abundant, and seasonal tailwinds point toward a Santa rally. As CNBC’s Mike Santoli noted, “The core tenets of the bull case remain intact — insatiable AI demand, a Fed easing by choice, and a market that still believes in its own story.”
Final Word: October proved that fear alone can’t stop this market. November will test whether euphoria can.
And For What It’s Worth…
An Arizona cow, born and raised for slaughter, made headlines this summer after bolting from her handlers and galloping through traffic in the blistering heat. After a brief police chase, she was corralled and returned to what looked like her sad destiny.
But the story didn’t end there. Animal rescuer Aimee Takaha saw the video, raised $2,500 in 24 hours, and bought the cow’s freedom.
“She had that fight for freedom,” Takaha said. “I thought she’s so remarkable.”
“Mootilda,” as the cow is now known, has found her forever home at the sanctuary — roaming free with her farmyard companions.
Investors take note: as Warren Buffett — and now Mootilda — have shown, sometimes breaking with the herd can make all the difference.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
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