Are We in a Bubble?
As 2025 winds down, many investors wonder if the market is peaking. Despite long-term investing being key to building wealth, recognizing the factors impacting events today is important. So, let's explore the common concerns of the moment and what they mean for your portfolio.
Fears of an AI-driven Bubble
Artificial Intelligence themed stocks have pushed markets near record highs, leading many to consider if we are experiencing a bubble. Significant gains in this sector may remind some of past bubbles -- particularly the dot-com crash at the beginning of this century – but today’s market is different.
At that time, mania around internet themed stocks proved to be over-enthusiasm for companies that had little real value. Many of the stocks driving this current wave are large, well-established firms with long track records of success and balance sheets positioned to sustain a growth slowdown.
Interest Rate Cuts
Beyond market valuations, monetary policy strongly influences investor sentiment. The Federal Reserve has cut interest rates by a quarter point. Normally, a rate cut by the Fed is indicative of a slowing economy, but the context here is important. This is a reduction in rates to normalize policy for current market conditions. Inflation has cooled, but economic growth continues. Historically, gradual rate cuts without a recession have proven positive for diversified portfolios.
Federal Government Shutdown
While becoming more common in recent years, federal government shutdowns do not typically have long-term effects on the market. While impactful for government workers and their families, this is a small part of the workforce and does not usually create a broad economic slowdown. While key data or economic indicators may be delayed, the main drivers of growth such as corporate profits, interest rates, or valuations are unlikely to shift.
While shutdowns attract significant attention and can be problematic for those directly affected through government employment or reliant on benefits, long-term broad monetary impact is unlikely.
Where do we go next?
A sharp drawdown is certainly possible, if not likely. Volatility has increased recently, which may be an indicator of a coming correction. However, keep in mind that already this year we saw one of the swiftest corrections and rebounds in recent history. Things always seem dire in the moment, but understanding context and keeping an eye on the long term is essential. Remember that time is your friend. The economy is growing steadily, unemployment is manageable, and corporate earnings (the main driver of market returns) project continued growth.
Year-End Action Items
Here are a few smart moves to consider before December 31:
Roth IRA Conversions – Build tax-free retirement income and flexibility
Tax-Loss Harvesting – Offset gains by selling underperforming assets
Maximize Retirement Contributions – Check 2025 limits to reduce taxable income
Rebalance Your Portfolio – Align your investments with your risk tolerance
Review Your Financial Plan – Adjust savings to benefit from compounding
Put Idle Cash to Work – Consider accounts offering 3–4% yields
As always, I’m here to help you navigate any environment or changes to your situation. Reach out to ensure your strategy is aligned with your goals.