While there remain many reasons, in our view, to be bullish on the market, we would be remiss if we did not acknowledge the ever-so-slight shift in the “vibe” we have been getting from clients in our travels over the last several weeks.  Of course, it depends on who you ask but there is a notable and increasing drumbeat of concern about the underlying health of the bull market.  This has been coupled with a decided increase in attention on the bull market in Gold (and other precious metals) and continued concern for prospect of higher rates of inflation.

Strategas hosted its 11^th Annual Investment Forum in Bermuda at the end of September; guests were decidedly bullish… on the economy and U.S. equities, both into year-end and for 2026.  (Interestingly, over four days, very little time was spent discussing Gold.)  Much of the optimism was rooted in the ostensible benefits to accrue to the economy in the next 12-15 months from the passage of the O3B tax legislation passed in July (even if it draws renewed suspicion of the long-term fiscal propriety of the U.S. and its citizen spenders), on the one hand, and the stronger outlook for corporate profits following the rash of downward revision that accompanied the Administration’s Liberation Day trade policy announcements in early-April, on the other.  The shift in sentiment now lays a heavier burden on results in the now underway 3Q earnings reporting season.  It is difficult, as we have written in these pages, to justify the multiples currently priced into the market if the earnings do not come through as – or better than – expected.  Thus, the always important 3Q earnings season (which gives us a renewed read on managements’ outlook for ‘next’ year) will draw even more scrutiny this year given the relatively easy ‘pass’ investors gave shares in the wake of 2Q uncertainty and given the intendent cost pressures building up in the supply chain due to the Administration’s disruption of long relied upon global trade norms.  In short, the resilience of sales growth, the digestion of cost pressures and resulting operating margin drift (i.e., expansion vs. contraction), coupled with the outlook for corporate profits in 2026 will provide a commentary on current market valuations and their sustainability in the future.

As an aside, while we prefer more fundamental arguments, we do receive a fair number of client questions on more superficial arguments regarding the state of the market’s bull run.  As my colleague, Strategas strategist, Ryan Grabinski highlighted in a recent dispatch of the Strategas Daily Macro Brief, when we compare the AI-driven rally in the Nasdaq it appears relatively modest compared to past bubbles.  Since the market’s Covid low in Mar’20 the Nasdaq is up about +200%.  In contrast, at the peak of the Tech bubble of the Mar’00, the Nasdaq us up nearly +400%.  Similar orders of magnitude were present during, among others, the Japan Inc. run in the late-’80s, the China WTO boom in late-’00s.  Said another way, market excesses can persist longer than expected, and one factor that could be extending this cycle is the increased portability of capital in today’s global financial system.

The glisten in Gold is back!  The yellow metal has been on the move over the past several years.  There is no shortage of culprits influencing the recent move in Gold and, to a lesser extent, in other precious metals in recent years…  inflation and inflation expectations.  Fiscal profligacy.  Monetary promiscuity.  Currency debasement.  The confiscation of Russian reserves.  De-Globalization and the rise of economic nationalism.  Prima facia, each of these on their own could explain and sustain the move, as a package, perhaps more so.  One aspect of the move in gold prices – and we think this is applicable (albeit in slightly different form) to the move in equity prices as well – has been the proliferation of exchange traded products which has created retail access points for a sleeve of assets (e.g., bonds, currency pairs, and – yes – commodities) that had previously been generally available only to institutional investors in the spot market.  If the data on currency reserves is to be believed, the marginal buyer of gold has been global central banks intent on divesting (or, at least, diversifying away from) U.S. Treasuries and the U.S. Dollar.  While small relative the market-cap of global equities, consider commodity ETFs now have ~$290 billion of AUM; Gold-related ETFs make up ~$235 billion of that.  Most of these vehicles are required to hold physical gold against their NAV.  While it can be difficult to appreciate all of the dynamics, De-Globalization is likely to remain an important consideration for global operators and investors alike in the years ahead.  Gold is a small but important window into those considerations.  While one should be careful of asymptotic charts, we maintain the environment remains bullish for a continued bit to Gold.  

With renewed tensions in trade negotiations between the U.S. and China in recent weeks and given there remain inflationary pressures on goods in the U.S. economy, it is not surprising economists and investors remain concerned on the prospect of higher rates of inflation creeping back into the economy.  But, as Strategas chief economist Don Rissmiller has highlighted, sustained U.S. inflation waves have usually been accompanied by a surge in oil prices and notable increase in the number of folks voluntary leaving their jobs (the ‘quits’ rate) which would lead an increase in wage inflation by about six months.  We don’t have either of those conditions today.  In fact, the U.S. labor market, as best we can tell with limited data, continues to look lackluster so the building blocks for a self-reinforcing wage-price spiral do not appear extant.  In the intellectual tug-of-war between “too complacent” and “too concerned,” Don and the economics team would posit investors are being overly concerned.  While inflation may again serve as a headwind to the economy, we view it more as a 2027 problem than one for 2026. 

While we would not be surprised with some persistent market chop over the next several months, the underpinnings of the economy – and the bull market – appear broadly intact.  The U.S. economy remains on generally firm footing.  The “Shareholders’ Equity” reading of monthly Market Balance Sheet exercise in which we categorize 16 broad measures of market health as either an Asset or a Liability remains at +10 through September (we prefer the weighted construction) and well above the +4.3 long-term average.  We remain bullish.  We have evolved positioning within our Strategas Macro Thematic Opportunities ETF (NYSE:SAMT) but see thematic momentum intact across five areas: 1) De-Globalization; 2) Artificial Intelligence; 3) the Industrial Power Renaissance; 4) Cash Flow Aristocrats; and, 5) 2026 Consumer Wave.  If we can be helpful to you and your team please do not hesitate to reach out. 

Nicholas Bohnsack