Doherty Market Commentary Q3 2025

As we consider the threat of another US government shutdown, it begs the question, why does this keep happening? DEBT. After the global financial crisis, a new era of easy money emerged spurred on by “quantitative easing” (money printing). Governments around the world have abandoned fiscal restraint and it is unlikely that any “debt limit” will ever serve its purpose of keeping spending in check. The question isn’t “will a government shutdown cause a market downturn,” but rather, “what will be the implications of profligate spending year after year?”

While we question sustainability of deficits, the US central bank is facing unprecedented pressure by the President to lower rates. A 25-basis point cut and hopes for more provided short-term comfort to investors in Q3. After a drop of over 10% to start the year, US markets have rebounded with technology shares reversing their roughly 20% decline and pushing valuations back into thin air. Market concentration is again at historic levels with 10 of 500 companies in the S&P accounting for over 40% of the market value.

Canadian markets continue to perform well despite adversarial US trade policies. Historically volatile gold stocks increased on inflation fears and potential for a weak dollar policy from the US. Financials have also performed well as increasing buybacks and dividends are coupled with strong earnings. Overall, valuations remain within historical ranges for most sectors and our defensive positioning buttresses against the potential for larger swings in the TSX.

International markets took a bit of a breather after a very strong 1^st half. China was the exception as it climbed on hopes that a détente will be realized in its trade war with the US. Valuations remain relatively more attractive in international markets vs the US, however, we are increasingly cautious and taking profits where appropriate.

While momentum has returned to markets and can continue in the near term, there are enough red flags to keep us wary of their long-term sustainability. Market concentration, high valuations, increasing debt, and prospects of trade wars escalating, to name a few. But perhaps to best illustrate the current mood of markets and enthusiasm for AI spend, we will share a quote from Mark Zuckerberg:

“If we end up misspending a couple hundred billion dollars, I think that that is going to be very unfortunate, obviously, but what I'd say is I actually think the risk is higher on the other side.”

Unfortunate indeed. This does not scream capital discipline and is an echo of so many technological booms that, while ultimately transformative, did not survive without major market busts. Railways to nowhere in the 1800’s. Empty fiber in the late 1990s. The risk always seems to be under-spending, but in the short run, it is this reckless mentality that puts hard earned savings for investors most at risk. If the promise of AI is to be realized, our portfolio companies will benefit, but if the payoff from these investments is delayed, our discipline should cushion the blow of a disappointed market.