Dear Clients,
As we enter the final quarter of what has been a surprisingly strong year for the stock market, I’d like to share some perspective on the year so far, a few thoughts on the economy and markets, and some personal reflections about my work and Decision Investments.
It’s hard to believe it’s been almost twenty years since I founded Decision Investments—and some of you have been with me even longer at Smith Barney or Morgan Stanley. With more time to focus on work as an empty nester, the satisfaction of seeing such robust market performance, and the excitement of participating in the AI revolution, I sincerely feel as energized and passionate about work as I ever have.
We’re now managing $150 million in client assets, and that growth allows us to reinvest in better tools and service. We recently brought on a new Chief Compliance Officer to relieve me of much of the administrative burden and help us navigate an increasingly complex regulatory environment. Meanwhile, advances in AI are transforming how we analyze portfolios and identify opportunities, improving both our efficiency and our insight. I believe early adopters of these tools will hold a lasting advantage in the investment world. Together with other operational improvements, these changes allow me to focus more fully on managing your portfolios and our relationships!!
As of today, the S&P 500 is up approximately 14.8% year to date and the Nasdaq is outperforming with ~18.7% YTD. Since the bottom of the COVID-19 correction in March 2020, the S&P 500 has surged roughly 139%, a powerful reminder of how resilient equity markets can be in the face of uncertainty.
Over the past three years, the gains are truly exceptional but it’s the story underneath those headline returns that’s most compelling.
Below is a snapshot of performance across major indices and S&P 500 sectors:
| Segment / Index / Sector | YTD Return (%) | 1-Year Return (%) | 3-Year Total Return (%) |
| S&P 500 | 14.8 | 17.9 | 63.3¹ |
| Nasdaq 100 | 18.7 | 26.1 | 104.5² |
| Russell 2000 (Small Cap) | 11.4 | 13.5 | 36.0³ |
| MSCI EAFE (International) | 6.8 | 15.9 | 20.9⁴ |
| Information Technology | 21.8 | 18.0 | 78.5⁵ |
| Communication Services | 23.4 | 13.9 | 64.7⁵ |
| Consumer Discretionary | 7.5 | 19.4 | 52.8⁵ |
| Financials | 12.6 | 14.8 | 41.9⁵ |
| Industrials | 18.3 | 15.7 | 53.5⁵ |
| Health Care | 2.5 | 14.1 | 42.9⁵ |
| Consumer Staples | 1.6 | 9.6 | 39.4⁵ |
| Energy | 6.9 | 20.5 | 74.2⁵ |
| Utilities | 17.6 | 11.8 | 31.0⁵ |
| Real Estate | 6.0 | 11.7 | 27.8⁵ |
| Materials | 8.1 | 14.7 | 46.3⁵ |
Where Has the Strength Come From?
This year’s rally remains narrowly led. Technology, Communication Services, and Consumer Discretionary continue to dominate performance, driven by investor enthusiasm around AI, digital infrastructure, and premium growth narratives. Conversely, Utilities, Real Estate, and Consumer Staples lag as elevated discount rates weigh more on defensives.
The fact that so much of the S&P’s return is driven by a handful of names makes the breadth (or lack thereof) of advance a critical lens through which to evaluate sustainability.
Addressing Market and AI Bubble Concerns
A frequent question right now: Are we in a bubble reminiscent of the dot-com era? That’s a fair and important concern.
Let’s look at (our largest position) Nvidia, the industry leader in AI. The company currently trades at roughly 52× forward earnings, which is surprisingly similar to Costco’s valuation despite vastly different growth trajectories. Over the past five years, Nvidia’s revenue has grown an average of 64.2% per year, compared with 10.6% for Costco. By contrast, tech rivals and peers trade at much more aggressive multiples: AMD around 127×, Tesla roughly 256×, and Palantir at an extraordinary 628× or higher. This comparison suggests that while Nvidia is richly valued, it isn’t wildly detached from its performance or potential. Other names, however, clearly sit at speculative extremes.
It’s also worth keeping an eye on vendor-financing–style deals in the AI infrastructure space. Some of Nvidia’s newer arrangements resemble financing mechanisms more than traditional supply contracts, echoing practices seen during the late-1990s tech cycle. Today’s deals differ in structure–stronger balance sheets, more transparency, and better oversight–but they’re still worth watching given the immense capital required to fund the AI buildout.
The bottom line: we are not broadly in a bubble, though some names merit close scrutiny.
Macro Backdrop: Inflation, Rates & Growth
Inflation has cooled from its peaks, but remains sticky keeping the Fed cautious. Strong labor markets and resilient consumer behavior continue to complicate the policy path. Market pricing suggests multiple rate cuts over the next several quarters, but that is not yet “priced in” fully.
Tariffs and Trade Policy: Uncertainty around future tariff rates and their potential impact on both supply chains and consumer prices remains a wild card. If new tariffs are enacted or expanded, they could temporarily lift inflation while pressuring corporate margins and trade volumes.
Employment and AI: Employment remains a bright spot for the economy, but the long-term picture is evolving. While the AI revolution promises productivity gains, it also introduces uncertainty about which jobs will be displaced and which new roles will emerge. Many traditional roles in areas like administrative support, customer service, and transportation could face disruption, while entirely new categories of work–from AI model supervision to data ethics and infrastructure operations–are still developing.
The Fed’s balancing act is clear: ease too early and risk reigniting inflation; ease too late and slow growth or credit stress may emerge. One encouraging aspect is that the Fed now has ample ammunition to respond. If tariffs, job losses from AI, or other headwinds take a bigger toll than expected, it has plenty of room to lower rates. While rate cuts can take time to genuinely bolster the broader economy, financial markets often respond almost immediately–a dynamic that could help stabilize sentiment and valuations even before economic data improves.
That uncertainty means volatility may persist, even as the direction of policy gradually shifts more dovish.
Q4 Positioning & Tactical Thoughts
As we move into the final stretch of 2025, here’s how we’re thinking:
– Trim stretched exposures that have materially outpaced fundamentals.
– Add selectively in small-cap, value, or cyclical opportunities where valuations look favorable.
– Reassess interest-sensitive sectors (financials, real estate, utilities) as potential beneficiaries of rate cuts.
– Harvest losses in taxable accounts (where tax efficiency matters) to offset future realized gains.
– Maintain exposure to core growth and AI themes–but balance it with more grounded, quality names.
– Identify potential beneficiaries of the AI buildout, including power generation and transmission companies, data center infrastructure providers, and select industrials positioned to supply or enable the next wave of compute expansion.
Final Thoughts
There’s no reason to declare the bull run over prematurely. I remind you that after Fed Chair Alan Greenspan uttered his famed “irrational exuberance” warning in December 1996, the market kept going–for another 3¼ years. During that stretch, the S&P 500 rose an additional 105%, and the Nasdaq surged ~462.9% before the cycle turned in March 2000.
And candidly, I find today’s exuberance somewhat rational, given the depth of transformation underway in AI, compute infrastructure, and generative technology.
Please call, or email me to set up a call or meeting to review your accounts specifically.
Best,
Michael Malvin
CEO
Decision Investments