Bubble Talk: Why Equity Markets Don’t Seem Ready to Burst
Author: David Stonehouse
October 29, 2025
David Stonehouse, AGF’s Investments Interim CIO, weighs in on emerging markets, gold and the (un)likelihood of a market crash.
Global equity markets have rallied tremendously since the spring. Where do you see opportunities (and risks) right now?
We’re still constructive on equity markets and believe they can grind higher from here, but our Asset Allocation Committee (AAC) recently made some tweaks to its positioning that reflect stretched valuations and sentiment in certain pockets of the market, while also acknowledging the potential catalysts of rebounding economic growth and easier monetary policy going forward.
More specifically, we reduced our developed market equities exposure to modestly underweight and elevated our exposure to emerging market (EM) equities to overweight based on a belief they will benefit from continued weakness in the U.S. dollar over the medium term and valuations that aren’t as elevated as their developed market counterparts. Furthermore, we expect China and other EM countries to provide further stimulus, which should be supportive of EM economies and equities by extension.
Additionally, within fixed income, the AAC also upgraded EM bonds to overweight, largely on the potential to offer higher yields and diversification given the factors already discussed above.
Gold has also had a tremendous run so far this year. What’s your take on its rise above US$4,000 per ounce?
There is a debate about whether the rally in gold prices stems from mounting worries about the eventual debasement of fiat currencies or whether it is just a product of a very strong momentum trade, but we believe it’s a bit of both. Regarding the former, what’s primarily driving the concern is very high government debt (and deficit) levels, not only in the U.S., but in many other Western countries as well. If this trend continues, many believe the only way to reduce the debt is for governments to intentionally create inflation through policies such as increasing the money supply or lowering interest rates, which, in theory, would reduce the real value of the debt outstanding by decreasing or debasing the purchasing power of the currency.
For our part, we believe this debasement argument to be fundamentally sound and like others consider gold as an important hedge going forward. But that doesn’t mean momentum isn’t playing a role in the current rally and we remain cautious about further upside in the short term given just how much gold has climbed so far this year. Even accounting for the sizeable pullback in recent days, the price return is close to 60% year-to-date, which is stronger performance –over comparable stretches of time – than anything we’ve experienced since 1980. So, the trade does feel a bit stretched at these levels, but we’re still constructive on gold longer term.
How concerned are you about asset bubbles and/or the potential for a market crash of some sort over the next few months?
We wouldn’t be surprised if global equity markets corrected given how much they’ve climbed this year, but we don’t believe we’re headed towards a more systemic crash as Jamie Dimon, JPMorgan’s CEO, and some others seem to be suggesting right now. His specific concern relates to a couple of auto sector bankruptcies that have happened recently, which, for him, could be early signs of excess lending and further defaults. Moreover, as a consequence of these concerns, some of the regional U.S. banks felt it necessary to “scrub” their books and take some more provisions against future credit losses.
Clearly, these headlines are worth monitoring, and from our perspective, there are obvious challenges in the economy, especially as it relates to lower income consumers who are still struggling to assimilate higher mortgage, food and other types of costs. But even though we’ve seen a slight tick up in delinquencies for auto loans and credit card payments of late, credit conditions still look healthy to us overall and the health of corporate America writ large does not suggest a systemic credit issue is imminent.
Granted, this may not be the biggest worry of most investors right now. Instead, what seems to be making an increasing number of them uneasy is the vaunted AI trade and the possibility that it becomes an asset bubble that is ready to pop. Yet, here again, we believe the risk does not yet look extreme at this stage in the cycle. In large part, that’s because the big tech “hyperscalers” at the forefront of this trade have tremendous free cash flow generally speaking and can support the spending they are undertaking for now without having to rely too heavily on debt. At the same time, valuations are not nearly as stretched as the were during the internet bubble of the late 1990s and early 2000s, which is the last big boom and bust that is most useful as a comparison.
Of course, that’s not to say an asset bubble couldn’t develop in the fullness of time, but we’re not there yet in our opinion, and continue to view this theme as still being viable at the current time rather than an imminent risk.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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Written by
David Stonehouse, MBA, CFA®
Interim Chief Investment Officer & Head of North American and Specialty Investments
AGF Investments Inc.
