The stock market extended gains through Q3, driven by corporate earnings growth. The S&P 500 remains on track for its fourth consecutive double-digit annual return—and its seventh in eight years. Equity leadership has continually rotated between high-valuation tech during periods of optimism and defensive value when sentiment cools. When we evaluate the extreme cyclicality and valuations of the high-flying AI darlings, we see reason for caution rather than participation.
Underneath these strong index numbers lies a "tale of two markets." While equities trade near record highs, benchmark Treasury yields have surged to two-decade highs—the 10-year reaching 5.31% (highest since 2002) and the 30-year touching 5.66% (highest since 2002). This presents a critical question: will economic momentum carry stocks higher despite elevated borrowing costs, or will sticky inflation, widening fiscal deficits, and heavy debt supply keep yields high enough to slow growth?
Either way, we see compelling value in quieter, resilient market segments over expensive index leaders. In equities, high-quality Health Care and Consumer Staples offer attractive valuations anchored by durable cash flows. In fixed income, short-term maturities, possibly moving more toward intermediate-term bonds as interest rates rise, offer strong yields and income potential.
Looking ahead, our strategy remains anchored in cash-generative companies with growing dividend streams. While we see valuation excess across the broader market—and remain watchful to selectively lock in higher yields as rate volatility unfolds—our fundamental discipline seeks to capture capital appreciation while mitigating downside risks during turbulent periods.
As always, we appreciate your continued trust and partnership. If you would like to review your portfolio or discuss your financial goals, please contact our team.
Data Sources: Koyfin, Black Diamond, Allied Calculations