October 18, 2025

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a volatile week with sharp swings, leaving major indices roughly flat for the week.
• Bonds rallied as investors sought safety amid stock market worries, outperforming stocks this week.

What headlines moved the markets?

• Trade and tariff tensions eased briefly before flaring up again.
  • The sharp selloff at the end of last week was caused by President Trump announcing 100% tariffs on China. Then early this week he signaled openness to negotiations, only to have tensions resurface days later.
  • The TACO trade (Trump Always Chickens Out) was coined earlier this year and has been a recurring theme among investors.
• Regional banks disclosed unexpected loan losses this week sparking credit quality concerns that spread across the financial sector.
  • Financials tend to do well during periods of interest rate changes, but a slack in the demand for loans has made banks eager to lend to less qualified borrowers.
  • From a long-term perspective, credit cycles are normal.
  • My greatest concern for a bubble is in private credit (non-bank-issued loans from hedge funds such as KKR or Ares), not the public credit sector.
• Fed Chair Powell signaled continued rate cuts ahead despite the government shutdown delaying key economic data.
  • Markets are pricing in a 97% chance of a 0.25% rate cut at the October 28-29th meeting, which should benefit both stocks and bonds.
  • As the saying goes, don’t bet against the Fed.

Personal Finance: what is private credit?

• Private credit is a loan made outside of traditional banks, think of it as direct lending between investors and companies.
  • Instead of a company going to a bank for a loan, they borrow money directly from a private investment fund.
  • These loans are quicker and easier to get, less regulated, and accessible to businesses who have been denied credit from a bank.
  • The catch is that the interest rates tend to be much higher, close to 12%.
  • The private credit industry developed in response to the post-2009 crash Dodd-Frank regulations, which made it more restrictive for banks to lend.
    • Private credit has exploded from $500B in 2010 to $1.7T today.
    • Due to both the lack of regulations or transparency, this is where I expect the next economic crash to come from.

Quote of the week
“I think all the ingredients are in place for some kind of a blow off.” – Paul Tudor Jones, longtime hedge fund manager who predicted the 1987 crash.

• Jones said this recently when asked about a bubble in tech/AI stocks.
  • Today’s market is very similar to the dot-com bubble of 2000, and keeping with that analogy, we are in the year 1999.
    • The Nasdaq doubled between 1999 and the peak in March 2000.
    • It also took 15 years for the Nasdaq to recover after reaching the bottom of the crash in October 2002.
  • A significant difference today though is that the Fed has just begun monetary easing (lowering rates) which will cause the bull market to run up further. Whereas in 1999 the Fed was hiking rates to cool off the economy (remember Greenspan’s irrational exuberance speech?).

Conclusion

• Diversification and discipline are critical to navigating this bull market.
• Smaller companies and real estate will benefit the most from lower rates.
• I don’t expect a crash next week or even next year, but it will inevitably happen someday. So make hay while the sun shines!

Have a nice weekend,

Kevin