We have three more trading days until the end of the 3rd quarter. That will kickstart the last earnings season of 2025, and will define the behavior of the equity market until year end. Expectations are good, particularly for the Mag7, hyperscalers, tech lords or whatever hyperbolic name we want to use. Realized volatility for equities just hit multi year lows, and valuations continue to be stretched. The Buffett indicator, shown below, which is built by dividing total US equity market Cap to US GDP, is above 2 standard deviations. Assuming this data stream follows a normal distribution, which closely does (but not 100%) this only happens 2.5% of the time. That’s how extreme and rare this is. This indicator could correct itself through a new GDP push, fueled by AI, but it looks like we’re not there yet. We’re still in the investment phase, not in the harvesting one. Which leads us to believe this extreme reading will correct itself with an old fashioned market downturn. Potential triggers? Negative surprises on earnings or Fed not willing to lower rates before year end. But the train that hits you is the one you don’t see coming.

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