Market Pressures Flagged in 3Q Are Emerging

On our 3Q webcast, we highlighted several areas that made the market feel increasingly vulnerable — narrow leadership, heavy retail participation, and speculative pockets that had gone parabolic. Over the past few weeks, many of the issues that we discussed have begun to surface.  We were cautious on the market then and continue to be now.

Several speculative areas we highlighted have come under meaningful pressure. Bitcoin sliced through 90k decisively, the non-profitable tech index is down roughly 30% in three months, and retail favorites — meme, nuclear, uranium, quantum, space — all reversed sharply. The momentum unwind across AI-adjacent and high-beta areas is consistent with the vulnerable setup we walked through in October.  Having a long history and knowledge of markets allowed us to not overreact to momentum and retail favorites during that period, and instead reinforce our commitment to quality growth and free cash flow.

Chart 1: Non-Profitable Tech Index — 30% decline over 3 months

Source: Farzin Azarm, Mizuho Americas, as of 11/13/2025

The thematic baskets that led the speculative surge earlier this year were also among the weakest performers recently:

Chart 2: High-flying pockets have finally blinked

Source: Bloomberg as of 11/20/2025

At the same time, we’ve seen an uptick in M&A — particularly in Health Care and biotech — which aligns with the conditions we discussed on the call, given depressed valuations, improving revisions, and major patent-expiration clusters across large pharma.

Chart 3: Health Care has dominated deal activity YTD, most notably in Biotech. 

Source: BofA US Equity Quant Strategy as of 11/7/25

We’ve also seen rotation toward laggards and higher-quality areas — Health Care, Financials, and select Industrials — a shift that often follows periods of speculative excess.

A lot of this reflects the underlying conditions we discussed in Q3. Multiple expansion had effectively run its course. Retail leverage left limited cushion once momentum turned. Retail poured money into thematic and leveraged ETF’s right at the top.  Early credit stress — most notably the widening in CDS spreads — signaled that not all was well beneath the surface. And across AI, the capital intensity, debt-funded capex, and circular financing loops pushed expectations well ahead of fundamentals.

Looking ahead, the setup remains more uncertain than usual. A traditional year-end rally isn’t guaranteed, and we do not expect Fed cuts in December or early 2026. From here, returns will need to come from earnings, not higher multiples — which is why we continue to emphasize quality and laggards with durable balance sheets and improving earnings trajectories: Health Care (our highest-conviction area), Financials, and select Industrial and Consumer names.

Many of the dynamics we were watching in Q3 have begun to play out. We remain constructive but cautious — focusing on fundamentals, and positioning portfolios for a more selective, earnings-driven market as we move toward 2026.

Best,

Will

Will Muggia

President, CEO & CIO

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