Quarterly Client Letter: Q3 2025
When the tech bubble in the stock market inflated during 1999, we don’t recall as much chatter about a bubble as we are hearing today. From a contrarian perspective, it is comforting that there is a bubble in bubble fears. The Google Search index for “AI bubble” rose from zero in mid-September to 100 on October 2nd.
A Bubble In Bubble Fears?
Yardeni Quick Takes, Oct 5, 2025
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What a difference six months can make. When I was writing Peak’s 1st Quarter 2025 Client Letter, the U.S. stock market was just completing a three-week 20% collapse from its then all-time closing high on February 19th. The news cycle at that time was dominated by the announcement of, the implementation of and then a ninety-day reprieve from the administration’s “Liberation Day” tariffs. Since the day of the reprieve, on April 9th, the stock market has been in rally mode.
For the year, through the end of the 3rd quarter, the total return for the S&P 500 was a healthy +14.83%. That return includes the powerful 35% run from the April low. Importantly, the combined earnings of the businesses that make up the S&P 500 have also reached an all-time high. And, at least for now, future earnings estimates are continuing to move higher.
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A few of the topics that we have recently been covering in our investment committee meetings include:
1) Stock market valuation multiples are, by various measures, at or near all-time highs. For example, at the end of the 3rd quarter, the S&P 500 was trading at approximately 22.5 times future 12-month earnings estimates. This is not an indicator of near-term returns, but, in general, at the stock index level if you pay more for future earnings today, you are going to make less over the long-term than if you had paid a lower price (math!). The real risk comes if and when earnings collapse.
2) The Federal Reserve cut its Federal Funds overnight interest rate on September 17th by 0.25%. This was the first interest rate cut since last December. From the Fed’s September 17th FOMC press release: “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.” The Fed is tiptoeing between jobs, inflation, fiscal policy, economic uncertainty, politics, etc. Fortunately for them (and us!), big interest rate moves do not currently appear to be required (see stock market at an all-time high).
3) There is no doubt that over the last few years the concentration of market capitalization and earnings power has grown in the stock market. On a combined basis, the Technology and Communication Services sectors are now about 45% of the S&P 500’s total capitalization. They also produce approximately 37% of its earnings. In all, I think the stock market has been acting fairly rationally, rewarding the winners that beat expectations and punishing the losers that miss expectations. From an investment perspective, we continue to comb through the stocks that have under-performed in search of attractive opportunities for future growth.
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In the quote that opens this letter, one of my all-time favorite economists/market pundits, Ed Yardeni, dives right into the psychology of the markets. “From a contrarian perspective, it is comforting that there is a bubble in bubble fears.” Effectively, he is saying the stock market is not in a bubble because too many people are worried about it being in a bubble. On a large scale, if fear and greed are the driving emotions of mass investor behavior, then fear reflects that there are more opportunities for gains ahead, while greed reflects that everyone who is going to go all in has already done so and that future opportunities for gains are few. Having managed investment portfolios through a number of bubbles, I believe successful investing is not about picking market tops or bottoms – it is about managing risks over time. It is a process, not an event. At Peak, we focus on managing risks for our clients so they are in a position to collect the rewards when the markets provide them. Through appropriate diversification and investment selection, we strive to help our clients build and maintain financial security and meet their financial goals.
We hope this letter finds you and your family well. We appreciate your business, and we continue to work hard to earn the trust that you have placed in us. Please let us know if you have a friend or a family member who could use our assistance.
John McCorvie, CFA®
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management
