Resources/Weekly Insights

Volume 14, Edition 37 | November 24 - November 30, 2025

Is the Market Overvalued? A Loaded Question

Doug Walters, CFA

Is the market overvalued? It’s one of the most common—and most misleading—questions investors ask. In this week’s Insights, we explore why valuation isn’t a crystal ball and what smart investors should do instead.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

“Is the market overvalued?” It’s one of the most common questions investors ask—and one of the hardest to answer. Why? Because valuation isn’t a crystal ball; it’s a snapshot of today, not a guarantee about tomorrow.

Yes, by most traditional measures—like price-to-earnings ratios—U.S. stocks trade above historical averages. So, markets are overvalued? It’s not that straightforward. Context matters. Markets don’t move on valuation alone; they move on expectations. And right now, expectations include transformative technologies like artificial intelligence (AI), which could reshape productivity and profitability in ways that are hard to quantify. If AI delivers even a fraction of its promise, today’s “high” valuations might look very reasonable in hindsight.

Here’s the catch: to know if the market is truly overvalued, you’d need to predict future earnings with precision. Are analysts good at that? History says… not really. In the immortal words of Mark Twain, “Predicting is difficult-particularly when it involves the future.” The future is full of surprises—economic cycles, policy shifts, innovation, and human behavior all play a role. Remember 2020 and Covid?

What should investors do in the face of above-average valuations? One approach would be to prepare for some “inevitable” day of reckoning—a future market correction. But that is a risky venture. Expensive markets can continue to rise and missing just a few strong days can permanently damage long-term returns. A better approach is to stay invested and prepare to act if volatility creates opportunity. This is what real preparation looks like. A well-diversified portfolio allows investors to rebalance when markets swing, and attempt to use dislocations to your advantage.

The bottom line? Valuation is a useful tool, but not a market-timing signal. Investing is about probabilities, not certainties. Rather than asking, “Is the market overvalued?” a better question might be: “Am I positioned to weather uncertainty and capitalize on opportunity?” That’s where disciplined strategy—not prediction—wins.

61%

Rise in the price of gold in 2025

Above we discuss preparation through diversification. With gold up over 60% this year, it has punched above its weight as a diversifier.

Headline of the Week

Rate Cut Hopes Rise, But AI Questions Linger

Upstate New York has an expression: if you don’t like the weather, wait 15 minutes. Apparently, rate cut expectations follow a similar mantra—just replace 15 minutes with one week. Last week brought mixed economic data that signaled a potential pause in rate cuts. Fast forward another week, and markets recalibrated expectations, with confidence in a December move swinging back to near certainty. This shift occurred even as the Fed faces a data vacuum from delayed (or missing) government reports. Market expectations for a cut reflect the belief that policymakers will lean toward risk management despite incomplete information. The dual mandate remains front and center: inflation is still above target, while the labor market shows signs of strain.

Yet not all market narratives are Fed dependent. Beneath broad market gains, the tech-heavy Nasdaq snapped its winning streak, weighed down by persistent questions around AI. The “sky’s the limit” thesis that once seemed untouchable is now facing scrutiny as investors debate whether massive infrastructure spending can deliver returns that justify the hype. Execution risks continue to temper enthusiasm and are driving rotation away from AI-heavy names.

For now, the tone feels split: optimism around policy support on one side, and a more sober reassessment of growth engines on the other. Relief over rate cuts may dominate headlines, but markets are signaling that monetary policy alone can’t answer every question—especially those tied to the economics of innovation.

The Week Ahead

The market returns post-holiday, but without the standard jobs report we are accustomed to on the first Friday. What we do have is another ADP payroll report, Institute of Supply Management’s Purchasing Managers Index (PMI), and September’s personal consumption expenditures (PCE) price index. All of this is the last bit of data we get ahead of the central bank meeting.

Look at Me!

Without the non-farm payroll report nor the Job Openings and Labor Turnover report from the Bureau of Labor Statics markets will pay significant attention to the ADP national employment report and the Challenger monthly job cuts report for another month.

Last month, despite a weak picture longer term the monthly ADP number surprised to the upside, when it reported 42,000 jobs created.
The Challenger report disclosed a jump in layoffs in October; investors hope that it is not a trend.

50/50

The PMI reports, both the manufacturing and services this week will provide a glimpse of the economy. A reading above 50 is expansionary; below 50 indicates contracting economic conditions.

The manufacturing flavor of the report came in at 48.7 last month, while the service one remained above 50, at 52.4.
Estimates indicate both surveys might have moved up, even pushing the manufacturing survey above 50.

A Little Old

The PCE inflation report is for September, not November.

The last report we had was for August and year-over-year inflation was up 2.9% for core-PCE, which excludes the volatile food and energy.
Based on the Consumer Price Index and Producer Price Index previously released, there are exceptions that inflation may have moderated.
Import and Export Price Indices may also offer some information on inflation on Wednesday; this too is September numbers.

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