Big fears and uncertainty remain despite global stocks being up nearly 20 per cent through to late November – with Europe leading the way and the US recently closing the gap. Here are several key concerns investors keep fretting over – and answers to shed light on what others miss.
Two years ago, you said artificial intelligence was not in a bubble. Do you feel differently today?
No. AI stocks have indeed soared. But most are huge companies whose profits have leapt in parallel. They use free cash flow to expand, not through new debt or stock issuance. That is very unlike the infamous 2000 bubble, when myriad profitless tech companies kept spending their way to bankruptcy.
People rarely recognise real bubbles in real time. Instead, they see boundless opportunities. Then, headlines tout blue skies ahead in a new, “no-lose” world, inflating prices until the baseless bubble bursts. Hence, today’s AI bubble fears are largely self-deflating. Its fear is in stocks now.
Do economies – and stocks – need more rate cuts to keep climbing?
Might further rate cuts help the US? Yes. Rate cuts can steepen the yield curve (the gap between short-term and long-term interest rates), encouraging lending, as I detailed in September. That helps commerce, economic output and stocks. More cuts in places like Europe, the UK and Canada partly explains why those markets are leading the US this year. Their yield curves have steepened much more than America’s has.
But cuts are not needed in the US or elsewhere. Consider that US loan growth sped from 2.8 per cent year on year from last December to 5.2 per cent now. Eurozone lending is up 2.2 per cent year on year – not exactly white-hot, but far better than the contraction seen in late-2024 and early-2025. All that is enough for economies and stocks to fare fine on both sides of the Atlantic.
Reports say the rich are driving US consumer spending increases. If the wealthy pull back, is the economy doomed?
Yes, high earners’ spending growth outpaces that of lower earners. But importantly, do economic cycles actually hinge on consumer spending? No. Most spending is non-discretionary, like food, rent or mortgage payments and health care. People usually find ways to pay those bills during bad times, making consumer spending remarkably stable. It rose in every quarter of 2022 – despite a minor bear market marring that year. In the 2008 mega-recession, US consumer spending was far more resilient than headline gross domestic product.
The true economic swing factor is always business spending. While US capital expenditures dipped in the second quarter, that was likely due to companies spending big in the first quarter to front-run expected tariffs – not a sign of looming doom.
With massive layoffs seemingly mounting, are stocks overlooking economic trouble?
Stocks never overlook anything widely visible. When companies lay off tens of thousands of workers, it is tempting to draw sweeping conclusions. But that is unwise.
Yes, the US just saw its worst October for layoffs in 22 years. Private surveys show more than 150,000 jobs cut. But layoffs were higher still in February and March to little fanfare, as job creation usurped them. It remains unclear if that happened in October, as the US government shutdown meant there was no official jobs report. Data from private jobs trackers have been mixed but overall indicate employment growth after a midyear slowdown.
Also, employment data are late-lagging economic indicators. When companies cut headcount, it is an after-effect of other problems or strategy shifts. Companies pitched recent layoffs as correcting an overextension from earlier this decade. That already showed up in earnings. Markets priced it and moved on.
When real and broad economic trouble erupts, stocks show it long before jobs data do. With stocks near all-time highs in the US and globally, that is not today’s situation.
Many initial public offerings (IPOs) are getting attention. Are they sound purchases?
IPOs are great … for founders and early investors. But for the rest of us, the benefits are usually meagre. Firms typically go public when prices favour sellers – not buyers. IPOs abound after big, long stock market rises, when higher valuations and hungry demand yield founders’ windfalls. Hence, the other meaning of IPO: “It’s Probably Overpriced.”
IPOs do play an important role as a sentiment gauge, though. Truly huge issuance can portend dangerous market euphoria. Some 2025 debuts, like data centre darling CoreWeave, made waves. But globally, the $110.1 billion in IPO funds raised from the first quarter through to the third quarter is far from the frothy $446 billion garnered in the first three quarters of 2021. Warmer-but-muted sentiment is fine for stocks.
The presence of all these stock market worries is bullish. They temper expectations, priming positive surprise – fuel for stocks to climb the proverbial “wall of worry”.
