Opportunity Within the Cycle: Why the Bull Market Likely Continues—For Now
Markets often send mixed signals near the middle-to-late stages of long cycles and today is no exception. On the surface, we are seeing what appears to be a contradiction: record capital inflows into US equities occurring alongside rising layoff announcements and a modest uptick in unemployment. Historically, that combination makes investors understandably uneasy.
However, history suggests that this dynamic is not unusual during ongoing bull markets, particularly those driven by productivity and innovation rather than broad labor expansion.
Capital Flows and the Role of Monetary Policy
During 2025, a substantial amount of capital has flowed into US equities, particularly large-cap index vehicles. At the same time, job cuts have accelerated, pushing the unemployment rate higher. In past cycles, rising unemployment has often preceded recessions, and some of the most severe equity drawdowns have occurred during periods when labor conditions deteriorated.
That history deserves respect—but it also requires context.
When economic momentum softens and labor markets begin to loosen, central banks typically respond by easing monetary policy. Lower interest rates reduce the attractiveness of holding cash and increase the relative appeal of assets such as equities, real estate, and alternative investments. This dynamic often extends bull markets rather than ending them, even as economic data weakens at the margins.
This is precisely what occurred in the mid-to-late 1990s and again in the final stages of the 2003–2007 expansion. In both cases, equity markets continued to rise after early labor-market cracks appeared—until monetary policy eventually reversed course.
The unemployment we are currently seeing is better characterized as a period of pruning rather than one driven by structural shifts or weakened demand. Following the unprecedented hiring surge in the aftermath of COVID, it is natural for firms that overexpanded their workforces to now reduce headcount.
Why Today Is Not 2008
At first glance, the combination of high valuations, strong inflows, and rising unemployment invites comparisons to 2007–2008. But we believe the closer historical parallel is the late 1990s, not the Global Financial Crisis.
The defining difference lies in earnings and productivity.
Despite rising unemployment, corporate earnings—particularly in technology and innovation-driven sectors—are not only growing, but they are also accelerating. Investments in automation, artificial intelligence, and efficiency-enhancing technologies are allowing companies to grow output without proportional increases in labor. In other words, job losses today are not primarily demand-driven; they are productivity-driven.
This distinction matters. In 2008, earnings collapsed because the financial system itself was impaired. Today, earnings growth remains intact, concentrated in sectors that are reshaping how economic value is created. That allows markets to remain resilient even as labor-market headlines weaken.
Valuations: A Long-Term Constraint, not a Short-Term Trigger
It is true that equity valuations are elevated by historical standards, and history clearly shows that buying markets at high valuations tends to reduce returns over the next decade. That reality informs our long-term planning and reinforces the importance of selectivity.
However, valuations are a poor timing tool in the short run. Markets can—and often do—continue to rise from expensive levels, particularly when monetary policy is accommodative and earnings growth remains strong. High valuations tell us more about what future returns may look like years from now than where markets will go over the next several quarters.
This is why we believe the current environment favors active management and leadership selection, rather than broad, valuation-agnostic exposure.
Gold and Silver: Understanding the Recent Moves
Recent strength in gold and silver has attracted considerable attention, and while these moves are noteworthy, they are best understood within a longer historical and monetary context.
Over time, gold prices tend to align with inflation. However, there are periods—such as the one we are experiencing now—when gold moves well ahead of inflation. These episodes are typically driven by fiscal imbalances and growing government deficits, which push investors toward gold as a hedge against currency debasement rather than near-term price increases.
History shows that this phase does not persist indefinitely. As governments increase money creation to service and refinance debt, inflationary pressures eventually reassert themselves. At that point, central banks are forced to respond by raising interest rates to restore confidence in the currency and contain inflation. As markets digest the expanded money supply and higher borrowing costs, economic growth slows and attention shifts away from gold toward assets that benefit from a stronger currency and higher real yields, such as bonds and other defensive income-oriented investments. In prior cycles, this transition has marked the point at which gold’s leadership fades.
The silver market, however, is structurally different from gold. Silver is a much smaller market and is far more sensitive to supply dynamics and the imbalance between physical availability and paper claims. While silver does have important industrial uses, including electric vehicles, solar panels, and other technologies—this is not a new development, nor is it a surprise to investors.
Speculative interest in silver has historically surged during periods when industrial demand narratives gain traction. At the same time, commodity exchanges have a long track record of raising margin requirements to curb excessive speculation. These actions have frequently led to sharp and rapid declines in silver prices as leveraged positions are unwound.
Like many of our clients, I recall the period when the Hunt Brothers of Texas attempted to corner the silver market. That episode ended with a dramatic collapse in prices—an event now referred to as “Silver Thursday” in 1979—the last time silver traded above $70 per ounce. While today’s circumstances are different, the lesson remains relevant: silver’s price history is marked by volatility amplified by speculation, and periods of extreme price appreciation have often been followed by equally dramatic reversals.
Rotation Beneath the Surface
As discussed previously, gold and silver have performed well as early beneficiaries of monetary and fiscal imbalances. While precious metals may still have room to run, history suggests they are rarely the final winners in this type of environment.
As confidence stabilizes and capital spending expands, leadership tends to rotate toward:
- Raw materials and basic metals, which benefit from infrastructure, energy transition, and manufacturing investment
- Companies exhibiting genuine productivity gains, strong margins, and scalable growth models
This rotation reflects an economy that is adapting rather than contracting, another reason we expect risk assets to remain supported in the near to intermediate term.
Looking Further Ahead: The Inevitable Reckoning
While the current period remains fertile for opportunity, cycles do not end quietly—and they do not last forever.
Looking five to seven years ahead, we see a convergence of forces that historically marks the transition toward more stagnant market conditions:
- Valuations are likely to become increasingly stretched
- Demographics will shift as the youngest baby boomers enter mandatory IRA distribution years, turning a large cohort from net buyers into structural sellers
- Government debt levels may reignite inflation concerns, eventually forcing tighter monetary policy
- Corporate debt refinanced during the low-rate era will need to roll forward at higher rates, pressuring weaker balance sheets
These forces are not imminent threats—but they are visible, measurable, and cumulative. Their alignment is consistent with our expectation that the market will gradually transition toward a more challenging phase in the early 2030s.
The Bottom Line
Periods like this reward nuance. Rising unemployment does not automatically signal the end of a bull market—particularly when earnings growth is driven by productivity and innovation, and monetary policy remains supportive. At the same time, elevated valuations and structural imbalances argue against complacency.
Our approach remains grounded in participating in where opportunity exists today, while preparing portfolios for a future environment where discipline, selectivity, and risk management will matter far more than momentum.
History suggests that the most successful investors are not those who call the end too early—but those who recognize when leadership is shifting and adapt before the cycle turns.
Our View for 2026: A Year of Rotation, Not Reversal
Looking ahead to 2026, we expect the Federal Reserve to continue cutting interest rates, a backdrop that has historically been supportive of equity prices. As short-term rates decline, we believe a meaningful amount of capital currently parked in cash—earning attractive real yields over the past several years—will gradually rotate back into risk assets.
We do expect market leadership to change. Stocks that dominated returns in 2025 are unlikely to lead again in the same way. Instead, we see opportunities shifting toward more economically sensitive sectors, particularly:
- Financials
- Industrials
- Materials
- Health Care
Technology will remain an important portfolio component, but our emphasis is shifting away from the broad technology trade toward areas more closely tied to economic activity and capital investment—most notably semiconductors, which sit at the intersection of innovation and real-world demand.
Because 2026 is a midterm election year, investors should expect some volatility. It would not be surprising to see pauses or corrections as markets digest political uncertainty and investors reposition ahead of the election. Historically, these episodes have tended to be temporary and tactical, rather than signals of lasting damage to equity markets.
We also expect policy actions aimed at supporting economic growth and market confidence. Measures such as tariff adjustments or direct fiscal support could emerge as tools to influence economic sentiment and voter behavior. While the specifics are unpredictable, the general incentive structure favors growth-oriented policies.
Overall, we view the underpinnings of the economy as solid. As rates fall and liquidity improves, stocks should continue to benefit from incremental inflows—particularly into areas aligned with productivity, capital spending, and economic momentum.
Sincerely,
Kessler Investment Group, LLC
All information in this presentation is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
Opinions shared in this presentation are not intended to provide specific advice and should not be construed as recommendations for any individual. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.