Written by:
Alex Chappell
Investment Manager at Amber River DB Wood
We would argue that the current market phase is very much being driven by speculation, rather than fundamentals.
John Keynes, a famously influential British economist, once said “Investment Markets can stay irrational longer than you can stay solvent”, reflecting the notion that market prices can be driven by emotion and speculation for a long time, potentially longer than an individual can withstand not being part of the trend. We would argue that the current market phase is very much being driven by speculation, rather than fundamentals.
We think it’s safe to say that the world of investors currently believe in a very rosy forward story from here. It is one where government spending remains high for the foreseeable, interest rates are cut despite sticky inflation levels, and the Artificial Intelligence gravy train continues to gather speed. All of this may well prove to be true in due course, though we feel it ignores a lot of other important factors. When only the positives are accounted for, without due consideration for the negatives, the chances of disappointment will likely rise.
Understandably then, we have received a lot of calls and questions from clients over the last month about the sustainability of portfolio values given the positive returns so far this year, and also in October. As Mr Keynes points out, it is always very difficult to identify when a speculative trend will finish, though what we can say is we are very aware of the valuations in certain markets, and are taking action accordingly.
Before we get into that, as we alluded to, October was a strong month for our portfolios, with gains of between 1.27% (Very Low Risk) and 3.61% (High Risk). It is also worth noting that those returns have been delivered despite the fact we have been reasonably cautiously positioned over the last few weeks. So far in 2025, portfolios have returned between 7.18% (Very Low Risk) and 13.90% (High Risk).
Those things mean the portfolios are increasingly more defensive, and puts us in a strong position should we see the correction we now expect.
When approaching the question about where we may go from here, as always, we try to think in terms of a number of scenarios. For the current trends to continue, we really need economic growth to remain slow, policymakers and Trump in particular to stay amenable, inflation to fall back and Central Banks to continue to cut interest rates. We need a period without any AI curve-balls like DeepSeek in February, and company earnings to continue to beat expectations. If all that happens, then we may well see equity markets continue to grow strongly. If any one of those things doesn’t happen, then it is likely that volatility will increase into the end of the year.
Now to caveat that reasonably cautious view, it is important to note that the investment backdrop generally, remains favourable. Interest rates are around 4%, meaning income yields are strong, and there is a lot of room for Central Banks to cut interest rates if for example, economies showed signs of stress. So are we worried about a significant 20%+ market correction at this stage? Not hugely. Instead, what we do think is that the current ‘very rosy view’ is not sustainable, and at some stage, equity markets will likely experience a healthy correction, we just don’t know when.
Our positioning therefore, reflects that of our central view. We are heavily diversified across asset classes, geographies, and investment styles. Just this week we have taken profits on some of the areas that have performed strongly and added to cash alongside some alternatives positions which go up when equity markets go down. Those things mean the portfolios are increasingly more defensive, and puts us in a strong position should we see the correction we now expect.
If Mr Keynes’ quote is right, and we are some way from that occurring, we are comforted that we still have lots of good individual ideas that should continue to contribute to returns in the meantime.
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Our team at Amber River DB Wood includes Chartered financial planners who look after clients across the East Midlands and beyond.
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