One week / one topic: Burden of proof

Don’t believe me, just watch

Author

Stefano Amato
September 22, 2025

What happened?

Everywhere you look, asset prices keep going up amid talk of ‘melt-up’ dynamics.

Past performance is not a guide to future performance

At the same time, the widespread perception of permacrisis is reflected in positioning data.

Despite the torrid run across assets so far in 2025, many investors are (still?) not over allocated to risk assets.

And yet – while equity valuations already sit at elevated levels – the prevailing narrative is one that somehow feels consistent with a further push higher.

Source: Bloomberg. Past performance is not a guide to future performance.

As further confirmation of the current ‘risk-on’ vibes, implied equity and bond volatility sit at the 43rd and 49th percentile over the last 10 years respectively.

No biggie, then.

Past performance is not a guide to future performance.

But what should investors do? Embrace the power of price momentum despite the lingering uncertainty?

Our observations

  • Fundamentals: Trends are a pervasive feature of global markets, so – since you fight momentum at your own peril – you usually need a very good reason to do so.

  • Price action: Even in the context of an ‘everything up’ market, the dispersion of return looks symptomatic of a market that is still discerning. (see first chart)

  • Investor beliefs: Around three years ago, investors were certain that very steep rates increases would usher a recession. Is there a parallel with today, with trade tariffs as the bogeyman?

Source: AQR. Past performance is not a guide to future performance.

So what?

While we are currently close to being fully invested and running low cash balances in portfolios, there are obvious causes for concern.

But isn’t that always the case?

I honestly cannot remember a phase where there wasn’t some very credible reason to worry, even during periods that – with the benefit of perfect hindsight – saw very smooth returns.

2017 is a good example.

And so – in the purported absence of behavioral or narrative extremes – we are left with price action and valuations as our guideposts.

Since they are currently pointing in opposite directions – prices seem to want to keep rising, but you’d expect expensive valuations to impose a speed limit at these levels – a vigilant, but more reactive, stance seems appropriate.

While we don’t (ever?) know what’s going the next important turning point, close observation remains key to recognizing it when we see it…