THE 2025 PICTON REPORT
Navigating Uncertainty: Finding Stability Amid Market Bubbles
Enthusiasm for U.S. equities continues to grow based on belief in the soft-landing narrative, strength of the AI theme, and predictions for favorable policy developments from the next administration. Unfortunately, investors have priced in much of the good news around these developments. Equity valuations are at extremes, positioning is on the full side, and sentiment is exuberant. We believe the market is now a full-fledged bubble. It's time to be cautious and consider hedges.
> Read 2025 Outlook (PDF)*Investment Themes
01/
Navigating a Late-Cycle Bubble
The U.S. equity market shows clear signs of froth, with extreme valuations, exuberant sentiment, and crowded positioning. While optimism persists, the current setup suggests either a significant correction or further speculative risk-taking to sustain the rally. History cautions that late-cycle bubbles are fragile, making timing exits critical but perilous.
02/
Soft-Landing Narrative Intact, But Fragile
Resilient U.S. economic data, an accommodative Fed, and fiscal largesse sustain confidence in a soft landing. However, with much of the good news priced in, elevated valuations leave little room for error, heightening the risk of a sharp market correction.
03/
Inflation Risks Loom Large
Core inflation is a looming threat to the soft-landing narrative. Resurgent wage pressures and sticky pricing could force the Fed to tighten policy, bursting the equity rally. With markets stretched, inflation remains a key risk to watch.
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View all Picton Mahoney fundsAll figures provided are sourced from Bloomberg L.P. unless otherwise specified, and are based on data as at the dates indicated.
This material has been published by Picton Mahoney Asset Management (PMAM) as at January 8, 2025. It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction. The information contained in this material has been obtained from sources believed reliable; however, the accuracy and/or completeness of the information is not guaranteed by PMAM, nor does PMAM assume any responsibility or liability whatsoever. All investments involve risk and may lose value. This information is not intended to provide financial, investment, tax, legal or accounting advice specific to any person, and should not be relied upon in that regard. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
This material may contain “forward-looking information” that is not purely historical in nature. These forward-looking statements are based upon the reasonable beliefs of PMAM as of the date they are made. PMAM assumes no duty, and does not undertake, to update any forward-looking statement. Forward-looking statements are not guarantees of future performance, are subject to numerous assumptions and involve inherent risks and uncertainties about general economic factors which change over time. There is no guarantee that any forward-looking statements will come to pass. We caution you not to place undue reliance on these statements, as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made.
All projections provided are estimates and are in Canadian dollar terms, unless otherwise specified, and are based on data as at the dates indicated.
There is no guarantee that a hedging strategy will be effective or achieve its intended effect. The use of derivatives or short selling carries several risks which may restrict a strategy in realizing its profits, limiting its losses, or, which cause a strategy to realize or magnify losses. There may be additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.
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