It's time for a gut check on the economy and markets. For over a year, we've been saying markets are overinflated and overly concentrated—60% of U.S. stock market wealth is in 20 stocks, 40% in just 10. Price-to-earnings ratios have been blown out of the water to the high side, wildly overpriced, and priced for exploding earnings and AI to radically reshape the economy.
Now, we’re seeing a contraction—S&P 500 down 5–6%, Nasdaq over 10%. The Magnificent Seven alone lost over $2.5 trillion in two weeks. That's volatility. Those very few, very inflated stocks are starting to decompress, starting to see some of the meringue get squeezed out of that lemon meringue pie.
Not a Broad-Based Contraction
This isn’t market wide. Ironically, over the last two weeks, our dividend growth portfolios have actually risen in value, not shrunk in value. What’s happening? Money is leaving speculative tech stocks and flowing into companies with wide moats, stable returns, high and growing dividends, and well-managed debt. This shift is what we’ve been calling for, and now it’s happening.
Some of you have asked about market performance versus portfolio performance—this is what we’ve been anticipating. We didn’t know how far the tech bull run would go, but we expected a reversal. The ball is back on our side of the court, and our dividend-growing stocks are performing very well—even as the broader market pulls back.
Perspective vs. Perception
Perception is short-term—what’s happening to us right now. Perspective is stepping back and seeing the bigger picture. The market has simply returned to where it was the week before the election, in late October. Is this the bottom? Who knows. But let’s talk about why things may stay volatile.
Political & Economic Uncertainty
The past six weeks have been unprecedented. The Trump administration is moving aggressively, creating uncertainty—especially around tariffs, no tariffs, tariffs here, tariffs there, tariffs everywhere, tariffs nowhere.
Much of the uncertainty (at least in terms of headlines) revolves around Musk, DOGE, and the looming issue of overweight government spending. While many of us share that concern in principle, how we go about righting the spending is critical. Think of the economy as a 100-gallon fish tank with a 23-gallon iceberg (government spending). For decades, markets have adapted around it. Now, Trump and Musk have jumped in with chainsaws and pickaxes, swearing to hack the hell out of that iceberg. That’s spooking some fish.
Government borrowing fuels $3 trillion in GDP annually. If spending is slashed, GDP could contract by 10%—two to three times worse than the 2008 financial crisis, which saw a 4% drop. That’s why markets are uneasy.
Our Three Tailwinds
Despite short-term turbulence, three forces will drive long-term growth:
Millennials’ Economic Surge – 81M entering peak earning years, the largest wealth-building generation in history.
AI-Driven Productivity – Increased efficiency, reduced labor costs, and faster business scaling.
Boomer Housing Shift – Aging boomers passing homes back into the market, correcting supply issues.
Staying Disciplined
We are long-term bulls, short-term cautious. We’ve stayed disciplined, investing in strong companies with wide moats and stable cash flows—not overexposed to AI hype. While tech valuations are correct, we’re already standing in the right place on the beach, not getting washed out with the tide.
We never chased the AI bubble. We own many of the Magnificent Seven, but in reasonable proportions—1–2% of your portfolio per company, not 5–10% like some investors. Now that the tide is going out, we’re already positioned precisely where we need to be.
If you have questions, reach out. You’re why we do this. Thanks for reading and take care!