Dear Mr. Market:
You sure know how to keep us guessing.
“The bubble is about to pop”, right? After years of the constant drumbeat about an “inevitable” recession, the market is sitting near record highs again. But for those paying attention, the mood under the surface feels different. The leadership baton is being transferred …not toward the headline-making names that powered the last leg of the bull run, but toward the quiet, defensive corners of the market: utilities, healthcare, and consumer staples. The kinds of stocks you buy when growth gets wobbly and investors start seeking shelter.
And yet, despite the sector rotation, the broader indexes remain firm. It’s almost as if you’re daring us to overthink it.
Read more: How the Market Keeps Winning While the Headlines Keep Warning
A Market That Climbs Walls (of Worry)
For the better part of three years, the dominant narrative has been one of doom and delay: the next shoe is about to drop, the Fed’s going to break something, valuations are too high, consumer spending will collapse…pick your headline.
We’ve all heard the warnings. But while everyone was waiting for the storm, the market quietly climbed higher.
At My Portfolio Guide, LLC, we’ve kept clients invested throughout this period …not because we’re blind optimists, but because we understand a truth that’s as old as the market itself: the best returns often come when the headlines look the bleakest.
It’s what Sir John Templeton called “the point of maximum pessimism.” It’s also why staying disciplined, diversified, and patient has served our clients well through cycles when fear was fashionable.
Under the Hood: Defensive Gains and Subtle Shifts
The Wall Street Journal recently pointed out something subtle but telling: For the first time since mid-2022, the top-performing sectors of the S&P 500 this month are the defensive trio — utilities, healthcare, and consumer staples.
That’s not a coincidence. When investors get nervous, they gravitate toward companies that sell the things people buy no matter what ; electricity, medicine, toothpaste, groceries. These aren’t the tickers that light up CNBC, but they keep the lights (literally) on in your portfolio when volatility rises.
Meanwhile, long-term Treasury yields have fallen below 4% for the first time in a year, and gold, the eternal “fear gauge” , just broke above $4,300 an ounce, a record high.
On the surface, the market still looks bullish. But beneath it, capital is quietly repositioning.
Gold Fever and Selective Memory
Gold’s been on an extraordinary run… up more than 67% year-to-date and outpacing even the high-flying Nasdaq. We’ve owned it in client portfolios since 2019, long before it was fashionable. It’s done its job as a steady diversifier and an effective hedge against central bank shenanigans.
But here’s the thing: gold doesn’t lead forever.
A look at asset class returns by decade tells a story few want to hear when enthusiasm runs hot. Gold has shined in certain eras ; notably the 1970s, when inflation was rampant, but has underperformed in most others. The 1980s, 1990s, even parts of the 2000s saw equities dominate while gold languished.
Every cycle has its heroes. But leadership always changes hands.
Just as investors in 1999 thought the internet would justify any price, and investors in 2021 believed the “Magnificent 7” could never falter, today’s rush into gold feels a bit like déjà vu.
History says the trade works best when it’s unpopular… not when it’s on every headline.
Valuations, Euphoria, and the Shiller Signal
Then there’s valuation… the often-ignored seatbelt in a speeding car.
The Shiller CAPE ratio, which measures how expensive stocks are relative to long-term earnings, now sits near its second-highest level in history… eclipsed only by the Dot-Com peak. That doesn’t mean we’re about to crash tomorrow. But it does suggest forward returns are likely to cool from the double-digit pace of recent years.
If you have a few minutes and wish to see a decent summation of what the Shiller CAPE ratio is, please click here. In simple terms: expectations are high, and the margin for error is shrinking.
Consensus earnings forecasts are positive but mixed: many trackers show roughly ~10% near-term EPS growth, with higher estimates for 2026 if margins expand, meaning the market’s lofty valuation still relies on continued profit strength. If corporate profits deliver, markets can stay elevated. If not, gravity may start to reassert itself.
The Armchair Quarterbacks and the Game-Winning Drive
We sometimes make the parallel that investing is a lot like football. Everyone loves celebrating the touchdown ; the record highs, the wins etc., but few, in retrospect, appreciate the slow, grinding drives that got the team downfield in the first place.
Over the past three years, investors who stayed patient and stuck with their strategy (even when it wasn’t fashionable) were the ones who moved the chains. The armchair quarterbacks are now taking the victory lap, but they weren’t there in the huddle when the game looked unwinnable.
Markets reward endurance, not prediction. And the toughest yards are often gained when fear is at its loudest.
Where We Go From Here
Looking forward, here’s what we see:
- Defensive leadership may continue near-term, but this rotation is more opportunity than omen. Healthy markets broaden out.
- Small and mid-cap equities, after years in the shadows, could be positioned to benefit if rates drift lower and domestic growth stabilizes.
- Gold and commodities have done their job but given stretched prices and speculative froth, we’re starting to get cautious about chasing new highs.
- International markets, particularly developed Europe and select emerging markets, continue to trade at meaningful valuation discounts relative to the U.S. and this will be a theme we expect to revisit in 2026.
- Technology and AI infrastructure still represent a multi-year growth engine, but with dispersion ahead: it’s not just about chips anymore, it’s about “picks and shovels”…data centers, energy, and cooling systems powering the digital revolution. For those that did not see it yet, we just wrote about this in the recent edition of our quarterly newsletter, “the Guide“. (click here to view it)
The irony of this market is that while the headlines warn of danger, opportunity is quietly compounding…often in places few are looking.
Final Thoughts
Mr. Market, you’ve reminded us again that fear sells, but patience pays.
Investors who sat out waiting for the “inevitable correction” missed one of the strongest multi-year runs in modern history. Those who stayed invested… diversified across sectors, disciplined through noise, are now benefiting from that conviction.
It doesn’t mean the ride ahead will be smooth. Markets never are. But volatility isn’t a verdict; it’s a test. We’ll keep doing what’s worked, “keeping two hands on the wheel”, staying invested, staying rational, and letting strategy, not sentiment, call the plays.
The test of conviction. The test of discipline. The test of remembering that the game-winning drive often happens when no one’s watching. Because, as we like to remind clients in every edition of our newsletter: “Stay disciplined to stay positive”. Lastly, the market doesn’t reward perfection…it rewards participation.
