Groucho Marx famously said, “these are my principles and if you don’t like them, well, I have others.” In this spirit, it is fairly obvious that there are many ways to look at financial markets. This, of course, allows sellers to find buyers and markets to function. This is also why we like to look at markets through four prisms:
With this in mind, in the following pages I aim to review some of the more noteworthy recent market developments and what these might mean for global markets going into the new year.
1) Is the Artificial Intelligence Trend Running out of Steam?
Fundamentals: In the upcycle, capital-intensive bull markets typically go through a phase during which companies are rewarded—handsomely—for spending money. In these periods, what matters is showing the strongest potential growth. Think Chesapeake during the US natural gas boom, China Evergrande during the Chinese real estate boom, or Lucent in the late-1990s tech boom.
However, at some point, and for whatever reason, market participants stop rewarding growth at all costs. Instead, investors start to focus on how the growth will be funded. Suddenly, companies that were rewarded for spending money start to get rewarded for shedding the assets that they overpaid for in the boom.
The question at hand is whether we have reached this stage for the various AI plays. Two poster children illustrate this. The first is Oracle. In September, following announcements of aggressive capital spending plans for data centers, Oracle’s share price soared.
However, within weeks, questions arose over how this capital spending would be funded. The cost of insuring against a debt default by Oracle soared. And the share price rolled over hard.
The other poster child is Softbank, whose share price lost a quick -40% in the first few weeks of November, mostly on the news that Softbank had shed its shares in Nvidia, to double down on its OpenAI position - a decision the market clearly did not like.
Not that Nvidia itself is still the juggernaut it used to be. In spite of reporting very solid earnings, and announcing that the company could not keep up with demand, the company’s share price has actually lost ground in recent weeks. Nvidia’s share price is essentially flat since late July and is now trading below its 100-day moving average.
Against this stands the impressive rally in Alphabet, which has added almost US$2trn in market capitalization since its “liberation day” lows; the last trillion or so have come on hopes that Alphabet has designed a chip solution for its data centers that would allow the internet behemoth to bypass Nvidia. It might therefore be too early to conclude that it is all tougher news on the fundamental front of the AI trade.
Nonetheless, the days of relentless excitement seem to have faded, and more sober assessments now seem to be the order to the day. Or to put it another way, a long Nvidia/short Alphabet pair trade would have lost some -30% in November. This is quite a move—enough to get most risk managers out of their seats and tapping portfolio managers on the shoulder.
Valuations: Valuing rapidly growing companies is undeniably challenging. Add in runaway capital spending and differentiated asset depreciation policies, and getting a clear picture of valuations for the broad AI space is a genuinely cumbersome task. The easiest solution may well be to fall back on whether broader math’s makes sense.
On this score, Bain recently put out a note highlighting that for today’s level of capex to make sense, AI revenue needs to reach US$2trn a year in short order. This is a stupendously high number. For comparison, the entire advertising industry generates annual sales of roughly US$1trn. Alternatively, the annual GDP of Russia, or of South Korea, is roughly US$2trn. So does US$2trn in annual revenues make sense? Only if one assumes that AI is set to displace workers on a much larger scale than we have witnessed so far. Even then, US$2trn really is a lot of money!
Momentum: Nvidia just crushed its earnings and could not have been more bullish in the post-earnings call (what is more bullish than “we can’t keep up with orders!”?). Yet Nvidia’s share price has been trading heavy ever since. Usually, investors become wary of shares that do not rise on good news.
Nonetheless, at this stage, the AI trade has become so important it has basically overwhelmed equity indexes. The market caps of companies such as Nvidia are now so large, and the free floats so limited, that any continued inflows into US equities - either from domestic or from foreign investors—will have a disproportionate effect on the handful of tech stocks that sit atop the pyramid. Of course, the risk is that this knife cuts both ways. If suddenly investors feel that there are better destinations for capital than the over-owned, over-valued and over-bought US equity markets, then questions will quickly emerge as to who the next marginal buyer will be.
Investor positioning: Since ChatGPT was released in late 2022, the US equity market has added almost US$30trn in market capitalization. Clearly, the AI trade was the big trade of the past three years. Portfolio managers who latched on to the trade early have thrived. Others by now have most likely lost their jobs. The trade thus feels fairly crowded.
Conclusion on the AI trade: The market’s appreciation of fundamentals seems to be shifting in real time, valuations seem stretched, momentum appears to be stalling and investor positioning is most likely very skewed to the long side. In short, the AI trade is starting to look dangerous.
2) Has the Crypto Trade Hit a Wall?
Fundamentals: When cryptos were ripping higher, treasury companies kept raising capital from the market with the stated purpose of buying more cryptos. And as long as treasury companies were trading above their net asset values, raising capital made ample sense. That was then. Today, most treasury companies are trading at close to fair value. Just as importantly, the market’s appetite for any further fund-raising is very limited. And if everyone knows that if crypto prices fall by another -10% to -20%, some of these treasury companies will become forced sellers of the same coins they bought on the way up, then it is likely that very few investors will want to stand in the way of the forced selling.
In short, in a market in which price dictates so much, the recent price action is not encouraging. At this stage, the bigger question is whether there will be broader economic repercussions from a further pullback in crypto prices. After all, we have already witnessed US$1.3trn of wealth evaporation in the past few weeks. What happens if another trillion or two disappear?
Valuations: There are no genuine valuations to speak of in crypto, since coins do not generate cash flows.
Momentum: In recent weeks momentum has rolled over hard. And it has done so as a growing part of the ownership base has shifted from the original “whales” and “diamond hands” towards the broader investing public (thanks to the growth in ETFs) and into leveraged treasury companies (that will become forced sellers on any further pullback).
Investor positioning: Few institutions have meaningful exposure to cryptocurrencies. Getting precise positioning data is therefore challenging. Having said that, no institution “needs” to have crypto exposure per se. And neither do individual investors. The whole point of crypto is that it goes up in price. Once it stops doing that, does investor interest wane?
Conclusion on the crypto trade: In large part, the main argument for crypto revolves around price momentum. Once that disappears, what is left? Perhaps most worryingly, why is crypto tanking just as gold, silver and other precious metals are soaring? After all, the whole point of crypto was to be a hedge against currency debasement and fiscal dominance. Now to be clear, fiscal dominance is undeniably happening in the US, France, Japan and the UK. But it seems that bitcoin is no longer capturing new heights, even as concern about the long term future of fiat currencies accelerates. This is worrying.
3) Precious Metal Miners Roar ahead
Fundamentals: After two long decades of dismal performance, precious metal miners have been the best performing subsector so far this year, with most names doubling (or more). The GDX VanEck Gold Miners ETF is up more than 140% for the year to date. These gains make sense since precious metal prices have roared ahead, and energy prices have stayed low (mining is an energy-intensive business). As a result, miners’ margins have soared.
Just as importantly, the soaring price has not led to a rush of miners selling their production forward and locking in today’s prices. Nor has it triggered a surge in production. In 2025, global gold production will only marginally pass the highs reached in 2018. All of which should help keep metal prices firm, and margins at miners elevated.
Valuations: Following this year’s rally, precious metal miners are no longer cheap. On a price-to-book basis, miners are trading at a 20-year high. At the same time, the return on equity of these companies also stands at a two-decade high. Given the improvement in profitability, it is probably too early to conclude that miners have become too expensive. But at the same time, it seems obvious that precious metal miners are no longer undervalued.
Momentum: The share price and earnings momentum both appear strong. It was encouraging to see miners’ shares bounce back strongly in November; even as other popular market themes—AI, crypto, uranium—struggled.
Investor positioning: Most retail investors actually seem to have used the rally in gold-mining shares to lighten up on positions. At least, this is what the number of shares outstanding in GDX.US, the largest precious metal miners ETF, would seem to indicate. Following almost constant reductions of the shares outstanding over the past two years, today the total number of shares in GDX.US hovers at close to decade lows.
Conclusion: Precious metal miners have strong fundamentals, strong momentum, and investor positioning is hardly extreme. Against that, valuations are no longer cheap. Still, if recent years have taught investors anything, it must be that apparently expensive assets can become more expensive. With this in mind, this bull market should have legs.
4) The Yen is Back to Being the Worst-Performing Currency
Fundamentals: It has been an ugly few months for the Japanese yen. The currency has basically given up all of its gains for the year and is now the worst-performing major currency for 2025, on a total return basis. A number of factors explain the yen’s sharp roll-over, including: (i) the Bank of Japan has continued to refuse to raise interest rates even as domestic inflation stubbornly stays over 3%, (ii) the generous promises of increased fiscal spending made by Japan’s new prime minister Sanae Takaichi, and (iii) the rise in tensions between Japan and China following Takaichi’s unfortunate declarations about Taiwan.
Are any of these factors set to change soon? Unfortunately, the answer is “not likely.” Starting with the geopolitical angle, in Western terms Takaichi would most likely be described as a “neo-con.” At the very least, she is adamant about the need for Japan to increase its defense spending. This stance, along with her visits to the Yasukuni shrine, is bound to raise eyebrows in China, and also in the Koreas. In short, it seems unlikely that Takaichi will compromise much on either her fiscal or on her foreign policy stance. This leaves the BoJ as the most likely positive catalyst for a yen rally. However, the BoJ, usually happy to sit on its hands anyway, is under heavy political pressure not to hike.
Valuation: The yen is undeniably cheap. But then so is every other Asian currency. The Korean won, Taiwan dollar, and of course the renminbi are also grotesquely undervalued.
Momentum: The yen’s momentum is dreadful. Assuming that the yen ends the year more or less at today’s levels of around ¥155 to the US dollar, then the yen will have been the worst-performing major currency in every one of the past five years.
Still, one interesting question is: will the yen now hold above the lows it made in the summer of 2024 against the US dollar, renminbi and Swiss franc? These lows are essentially being tested as I write. At the same time, the yen is constantly making new lows against both the British pound and the euro.
Investor Positioning: Domestic Japanese investors have chased both yield and growth abroad. As a result, any meaningful rise in short-term Japanese interest rates will most likely have a sharp impact on the currency. But even if the BoJ does defy political pressure to hike on December 19, it seems in absolutely no rush to deliver further hikes to increase rates significantly from current levels. Meanwhile, foreign investors continue broadly to ignore Japan, even as domestic equity market performance has been decent. In spite of the yen’s weakness, over the past three years the total returns in US dollars from Japanese equity markets have been very respectable.
Conclusion: The yen is cheap, and it does seem to be hitting levels against the US dollar, the Swiss franc and the renminbi that in the past led to a rebound. On this last point, the more important cross rate may well be the renminbi versus the yen. Indeed, any rebound in the Chinese currency is likely to trigger a pan-Asian currency rally.
But the open-ended question is whether or not the Chinese authorities will now try to push the renminbi higher. For a number of reasons, I hope that 2026 will see a stronger renminbi. However, there is little doubt that the trajectory of the Chinese currency will remain a political decision, taken at the very top. Still, if the renminbi does bounce back in 2026, the yen should go along for at least part of the ride!
5) Latin American Government Debt Continues to Rally
Fundamentals: In 2025, most LatAm currencies and debt markets have rallied sharply. This makes sense on many different levels. Starting with the geopolitics, if the US is now set to focus more on its own backyard, and more importantly backstop LatAm economies, as the US did with Argentina, then this should greatly reduce the region’s risk premium.
Combine this new geopolitical reality with rising commodity prices for copper (Chile) and precious metals (Peru, Mexico), and the sudden scramble for rare earths, and today the economic outlook for LatAm is decently bright. Throw in national elections that have swung the political dial back towards the more “market-friendly” center right (Argentina, Bolivia, Ecuador, Chile) and capital continues to pour into the region.
Valuations: Real rates across the region remain among the highest in the world.
Momentum: After a dismal 2024, the momentum turned around in 2025 and the asset class now seems to really have the wind in its sails.
Investor positioning: Apart from local institutions, few investors internationally—whether institutions or retail—are exposed to Latin American debt. This is a shame, since today LatAm debt is one of the few places where one can harvest decently high real rates.
Conclusion: Strong fundamentals and momentum, attractive valuations and light investor positioning? The Latin American government debt bull market seems to be ticking all the boxes.
6) Could Energy Stocks be Done Underperforming?
Fundamentals: It has been an interesting few months for energy names. While most investors today seem to believe that energy in general, and oil in particular, will remain over-supplied for the foreseeable future, energy stocks have stopped falling—even as oil and natural gas prices have by and large been weak.
This recent strength may reflect a more uncertain geopolitical backdrop, with the increased likelihood of US action against Venezuela and Ukraine targeting Russia’s energy infrastructure. It may also be a reflection of the fact that most energy companies have now cut capex to the bare bones and so are generating decent cash flows even against a backdrop of low energy prices. Alternatively, it may be because of the creeping realization that proposed AI capital spending plans entail a rapid increase in energy needs.
Whatever the reason, energy stocks suddenly seem to be holding their own.
This makes sense to us. And as we have argued endlessly since inflation first started to emerge in 2021, energy stocks are now a better portfolio diversification than bonds. Once again, November illustrated this.
Valuations: On a price-to-book basis (price-to-book is one of the simplest ways to quickly value highly cyclical businesses such as commodity producers), energy stocks are hardly expensive. And they look like downright giveaways relative to the rest of the market.
Momentum: Energy has been a dog of a sector since 2009. Essentially, shareholders have paid a very steep price for the lack of capital discipline that was on display during the shale boom. Back then, companies were rewarded for showing growth, and management paid little attention to whether investments made financial sense (any parallels with current events in AI are purely coincidental). Of course, some years did see sharp relief rallies. The last such rally was in 2022. That year, a large energy position saved investors, who otherwise lost money simultaneously on bonds and equities.
Could the same happen again in 2026? One interesting development is that energy shares now seem to have stopped underperforming.
Investor positioning: Energy stocks now account for less than 3% of the S&P 500. We are not at the record lows set in the midst of Covid, but we are not far off. Essentially, energy stocks have become small enough for most investors simply to ignore them.
Conclusion: Today, energy stocks offer interesting fundamentals—a sound portfolio hedge both against geopolitical risk and against an inflation spike—attractive valuations, momentum that no longer seems to be deteriorating, and a total lack of investor interest. This does not seem like a bad setup.
Overall Conclusion
November felt like an important month: market-shifting news on the AI front, Google versus Nvidia, another leg down in the yen, a complete meltdown in crypto, energy stocks that started to do decently, and precious metal miners that went parabolic.
Not that these were the only notable trends. Chinese equities gave back some of their recent outperformance. And perhaps most importantly, US private credit started to show signs of stress. All this against a backdrop of heightened economic uncertainties with the US government shutdown and the continued threat of tariffs.
Still, the question at hand remains whether the market is starting to move away from deflationary-boom assets (AI plays, crypto) and even deflationary-bust assets (the yen), and towards inflationary-boom assets (energy names? precious metals and metal miners? Latin American assets...). To be sure, the markets “feel” more reflationary. Perhaps, given the fiscal and monetary policies currently embraced in most major economies, this feeling should not come as a surprise. And if reflation remains the order of the day, then emerging markets should keep outperforming developed markets, commodities will once again shine, and financials will once again outperform.
DISCLOSURE: Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness.