There seem to be a few things on investors’ minds right now: where interest rates are headed and whether the stock market is too high and due for a decline.
The stock market is high. It hit all-time highs again last week.
But as readers of this blog already know, that is not necessarily a bad thing.
Valuations are also quite high. The forward P/E is far above the 30-year average.1
There is a problem with investing based strictly on valuations, especially over the short term. Even Howard Marks in his recent memo considers current valuations having “moved from ‘elevated’ to ‘worrisome’” but notes that “the existence of overvaluation can never be proved...because ‘overvaluation’ is never synonymous with ‘sure to go down soon’.”2
In another interview this month, Marks spoke to whether or not we are in a bubble. He said:
“Everyone is looking for a bubble. Things are elevated. But I don’t think it’s a bubble because a bubble is characterized by just crazy psychology. I did not detect that. I still don’t detect crazy psychology, but…stocks have gotten more expensive as the year has gone on…I recommend possibly going to InvesCon 2 [reduce aggressive holdings and increase defensive holdings].”3
The recommendations of Marks—or anyone else for that matter, no matter how skilled—are not necessarily what is best for you. There is so much more to take into account when making investment decisions, which is why we sometimes give different answers to the same question to different people.
What about interest rates? On September 12th, 2025, the probabilities from CME Group are heavily favoring (90%+) an interest rate cut of 25 basis points, with likely more cuts to come before the end of year.4
If interest rates do indeed drop, what might stocks do? On average, they go up.
However, there are times when it indicates a wider economic problem and stocks decline.
This can lead research firms like DataTrek to predict a 25-basis point reduction rather than a 50-basis point reduction:
The history of Fed rate cuts back to 1990 shows that 50 basis point reductions almost always occur during or just after a recession. We expect the FOMC to cut by 25 basis points next week to avoid sending the wrong signal about their views regarding the US economy.5
One will have to wait and see.
According to Yardeni Research, Wall Street forecasts remain all over the place.
So take them with a grain of salt.
You can have your own bias reinforced by anyone nowadays about seemingly anything, which is why you must be governed by a plan and your risk tolerance instead of your feelings or favorite forecasts that justify them.
Mr. Marks agrees: “If forecasting is not valuable, then you can do a great service to your clients by telling them that.”
This may not make for great marketing, but just because truth isn’t marketable doesn’t mean it isn’t true.
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Sources:
1. “Guide to the Markets” (August 31, 2025). Accessed online: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
2. “Calculus of Value”, August 14, 2025. Accessed online: https://www.oaktreecapital.com/insights/memo/the-calculus-of-value
3. Interview with Public Policy Forum posted on September 5th, 2025. Accessed online: https://youtu.be/bfgNtbr2KuE?si=qXKegP03b0tplLB2
4. Accessed online: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
5. Nick Colas & Jassica Rabe (@DataTrekMB) published on X on September 11, 2025. Accessed online: https://x.com/DataTrekMB/status/1966257141800645030
6. Accessed online: https://yardeni.com/charts/wall-streets-sp-500-targets/