Comments based on information available as of 7:00am CT on 11/7/2025
Growth: Brought To You By The Letter ‘K’ 
Consumer confidence is rising for households earning more than $50,000 and falling for those earning less. Earnings growth expectations are up for big companies, but down for small ones. This bull market is brought to you by the letter “K” where one branch slopes up and the other slopes down. It’s no wonder investors can be confused, but that confusion could also create the proverbial “wall of worry” that bull markets tend to climb.
Inflation: Pricing Power Matters
A recent headline noted that some retailers are able to raise prices more to manage tariffs than others, underscoring how unevenly companies can pass higher costs through to consumers. For investors, this matters because firms with strong pricing power can protect—or even expand—profit margins in the face of rising input costs, whether from tariffs, labor, or supply-chain pressures. Companies that can adjust prices without losing customers are better positioned to sustain earnings growth, while those with weaker pricing power may see margins squeezed and revenue momentum slow. In an environment where cost pressures are persistent and competition remains intense, pricing power is key.
Policy: Not Whether, But How
Based on the oral arguments the Supreme Court heard—and the questions the justices asked—it appears that many of President Trump’s tariffs may be on thin ice. Of course, nothing is certain until the Court issues its decision. Even if the tariffs are struck down, the President still has other legally tested tools for imposing tariffs, though some might result in lower rates or take longer to implement.
Looking Ahead: High And Low
The media is once again abuzz about CAPE—the cyclically adjusted price-to-earnings ratio. This indicator periodically comes back into fashion, partly because its creator, Robert Shiller, earned a Nobel Prize, though not for CAPE. Its roots go back even further to Benjamin Graham, a pioneer of value investing. The key point: CAPE is a terrible market-timing tool. Relying on it too heavily would have kept investors out of the market during the 1990s and much of the post–Global Financial Crisis period—times when equities performed exceptionally well.
But what about when CAPE reaches an extreme? That’s where things get tricky. The composition of the companies included in the ratio has changed dramatically over time, making historical comparisons imperfect. Further complicating things is the change in accounting standards over the years making it hard to compare earnings across time. Yes, high CAPE values are generally associated with lower 10-year forward returns—but 10 years means 10 years, not 10 days, 10 weeks, or even 10 months. And importantly, “lower” doesn’t necessarily mean “negative.” Are prices high or are the “cyclically adjusted earnings” of the past too low and not indicative of where they will be in the future? A single ratio cannot answer that question. Deep analysis is more important than any given number.
