Medium-Term Market Outlook: Is The Bull Market Over?
While recent market jitters are prompting bull-market obituaries, we view this as a completely reasonable correction amid robust fundamentals. Valuation is rarely the sole reason bull markets end, and we see risk in trying to time the market here. Q3 earnings have delivered positive surprises (8% net income vs. 2% expected), with Tech earnings per share (EPS) up 30% and global revisions positive at 4.3%. AI capex momentum persists, bolstered by anticipated tax reforms and likely to come post-shutdown relief, projecting 10.8% U.S. EPS growth in 2025 and 13.9% in 2026. Fixed income remains rangebound, with the possibility of steeper curves limiting duration’s diversification appeal, heightening volatility risks. Yet, earnings momentum mitigates near-term decline threats, so we think maintaining equity exposure while bolstering the real resiliency of portfolios by harnessing volatility is the approach investors should seriously consider.
Factors to consider:
- Earnings Resilience: Q3’s 16% year-over-year (YoY) net income growth (Tech +30%, Financials +24%) signals sustained momentum; revisions rebounding globally (US 11.6%) favors equities over panic selling.
- AI Tailwinds Intact: Hyperscalers’—global tech firms that run vast cloud infrastructures— 37% EPS surge and unchecked capex point to innovation-driven gains; The tax cut provisions in the One Big Beautiful Bill could amplify 2026’s 13.9% growth projection. We see the AI investment buildout theme as in the 3rd-4th inning of a major sector opportunity.
- Policy Relief Realized: Today’s government reopening may ease fiscal drag, supporting industrials and consumer sectors.
- Bonds’ Limited Buffer: Rangebound rates and still low credit spreads (despite AI debt) underscore equities’ relative appeal which can emphasize the importance of maintaining balance and managing duration exposure
- Dollar Dynamics: Amid views of continued USD weakness, major U.S. capital raises/deployments and a Fed constrained from aggressive easing bolster the dollar, potentially curbing foreign equity diversification opportunities.
- Cboe Volatility Index (VIX) Rationale: With elevated but contained risks from capex cycles and policy shifts, a VIX in the 16–20 range (with spikes) remains a reasonable outlook. Overlooking volatility’s premium and range trading opportunity means potentially leaving alpha on the table.
- Correction, Not Collapse: Positive revisions and stable 2025-26 EPS forecasts highlight overblown fears—volatility can create entry points for long-term compounding.
- 2026 Pivot Watch: Capex deployment risks loom later and justify portfolio resiliency, but the current setup rewards staying invested. Approaches that can participate and use volatility should add value in this regime.
Sources: FactSet, Bloomberg, and Absolute Strategy Research.
Easterly Hedged Equity Fund(JDIEX)
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There is no assurance that the Fund will achieve its investment objective. The Fund share price will fluctuate with changes in the market value of its Fund investments. Mutual Funds involve risk including possible loss of principal. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk while increasing investment opportunity. Derivatives may be volatile and some derivatives have the potential for loss that is greater than the Fund’s initial investment. If the Fund sells a put option, there is risk that the Fund may be required to buy the underlying investment at a disadvantageous price. If the Fund sells a call option, there is risk that the Fund may be required to sell the underlying investment at a disadvantageous price. Shares of ETF share many of the same risks as direct investments in common stocks or bonds. Because a large percentage of the Fund’s assets may be invested in a limited number of issuers, a change in the value of one or a few issuers’ securities will affect the value of the Fund more than would occur in a diversified fund.
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