Cautious Greed: Markets Rise Amid Volatility and AI Momentum - 10/21/25

In this episode of Paramount Wealth Perspectives, Chris Coyle and CIO Scott Tremlett break down a week of market recovery and renewed optimism. They explore how investors quickly shrugged off regional bank concerns, why “buy the dip” remains a dominant mindset, and how AI continues to fuel corporate earnings and sector strength. The conversation also covers the upcoming Fed decision, global trade tensions, and what “cautious greed” means for investor sentiment heading into the final quarter of the year.

Tune in for timely insights on positioning portfolios amid strong earnings, sticky inflation, and fragile confidence.

Transcript

Chris Coyle: 0:00

Intro song

0:11

Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. I am the market director and an advisor here at Paramount Associates Wealth Management, and today I'm joined by Paramount's, chief Investment Officer Scott. Alright, Scott, let's start with a recap of last week. It felt like the market got its footing back after some midweek volatility. How did things shape up? Yes, sir. We saw a nice pop after those regional bank worries on Thursday. Markets rebounded into the weekend. The s and p 500 gained about 1.7%. Nasdaq 2.1% and the Dow was up about 1.6%. It was a clear by the DIP response, which continues to be the dominant theme, right? Those banking headlines stirred some short-term panic. Indeed, the news from Zion's Bank and Western Alliance about fraudulent commercial loans, definitely spooked investors, but big bank earnings had already painted a healthy picture. Strong loan growth. Steady credit metrics and healthy capital markets activity. Once it became clear, the regional bank issues were isolated. Buyers came right back in, and earnings overall still solid. They do about 12% of the s and p 500 has reported and roughly 86% have beaten estimates. We're tracking 8.5% earnings growth for the quarter, the ninth, straight positive year over year period. Revenues are up. 6.6% and the early trend is resilience, especially in financials and tech, even with all the macro noise. But tech's still doing a lot of the heavy lifting, correct? Absolutely. AI continues to be the strongest secular story out there. We saw TSMC raise full year guidance. Oracle defend its margins and a MD pop on new GPU demand from Oracle Cloud. Even Walmart, believe it or not, got into the AI mix partnering with open AI on instant checkout. The AI investment cycle just keeps broadening data centers, chips, cloud infrastructure. It's an arm place. So if earnings are fine and AI is still fueling the narrative, what's keeping investors on edge? Two things in my mind. Sentiment and positioning. There's a lot of nervous optimism. On the one hand, you've got resilient retail inflows. Retail traders have been net buyers for seven straight weeks. On the other, institutional investors are stretched long according to recent funds. Surveys, cash levels are at the lowest level since last December, and equity exposure is at the highest since February. So if there is a shock positioning could amplify volatility spot on. You've got high positioning, narrow leadership, and complacency showing up in volatility markets. If the VIX volatility level falls back below 14, that's usually when markets get surprised. So while the setup isn't bearish, it may be fragile. A data surprise, a fed misstep or geopolitical flare up could unwind risk quickly, but we're still seeing a buy the dip mentality hold. Yeah, that's the thing. Even the regional bank scare only lasted today. The strength of the corporate balance sheets and the lack of alternatives as cash yields are falling again, keep drawing money back into stocks until something breaks that feedback loop. Dips will continue to be bought. Let's talk policy for a moment. We've got the fed meeting next Wednesday. What are you expecting? Well, the market's fully priced for a 25 basis point cut, which would be the third of this easing cycle. Powell will likely emphasize caution. The Fed wants to keep easing conditions without reigniting inflation. The Fed's blackout period's now in effect, so we'll get all the clarity we can from next week's statement and press conference. And the data vacuum from the government shutdown. Is that still a problem? Huge problem. We haven't had a clean read on jobs, retail sales, or producer prices. In weeks, we hear some tidbits from a DP on jobs and payrolls, but the only major data. We'll get this Friday is September's consumer inflation report, which has to be released for social security reasons. Markets expect a modest 0.3 headline and a 0.2% core print. Anything hotter than that. Would complicate the easing narrative heading into year end. Let's pivot abroad. The US China situation was noisy again last week. Where do things currently stand? The big one was China's rare earth export curbs. It spooked supply chains and had echoes of 2019, but by the end of the week, things calmed down. The US Treasury secretary spoke with China's vice premier and they'll meet again in Malaysia to prep for the potential Trump Z Summit in South Korea later this month. Both sides seem motivated to dial it down. Markets like that, so it's tense but not escalating, right? It's a push and pull dynamic. Political posturing and economic reality in the background, even Trump's language softened a bit saying a hundred percent tariffs. Aren't sustainable. That was enough to take pressure off risk assets late in the week. What's all on the docket for this week? Well, the big three R, I mean, the Fed decision is still looming for next Wednesday with a 25 point cut expected. We have Friday's consumer inflation report. It's a key input before the next fed meeting, and there's an earning floodgate this week, nearly 90 s and p companies report, including Tesla, Netflix, gm, ge, Coca-Cola, Proctor and Gamble, Ford and Intel. It's a full spectrum from heavy industry to consumer to big tech. So we'll get a strong read on overall momentum. Time for the lightning round. We doubled the questions this week because, well, there's a lot to unpack. Ready? Let's do it. What's the single biggest risk to markets right now? A hawkish surprise from the Fed. If Powell hints that inflation's not under control, you'll see a yield spike and a quick five to 7% equity pullback. Where's the best opportunity in quarter four? In my mind, industrial automation and AI infrastructure, semis, power equipment, and select cloud names also short duration, high grade credit still pays you decently with manageable risks. Any sectors you'd completely avoid. Well the regional banks, until we get clear data on loan quality, also long duration, utilities rates may fall, but the debt load there still worries me. How do you see consumer health heading into the holidays? Still solid Chase card data shows spending up 0.7% in September. Upper income consumers are doing the heavy lifting, and we haven't seen meaningful credit deterioration yet. W in your opinion, will inflation pick back up? Not dramatically. Uh, goods inflation has picked up and services and housing are definitely sticky. I think we end the year with core CPI or consumer inflation around 2.7%, but that is above the fed's target is the gold run. Sustainable gold's up 25% since summer. As long as real yields drift, lower and geopolitical stress stays elevated. The trend holds I trim into strength, but not abandon the trade altogether. If you are in, how about oil? Three straight down weeks? Yep. Crudes around$57. Supplies fine. Demand soft. Unless China or OPEC does something dramatic, I think oil grinds sideways into year end. Are we in an AI bubble? You can make an argument that parts of the AI buildup are trending into bubble territory, but I'm not in that camp right now. It's not 1999. There's real revenue and infrastructure behind it. Semis, power Cloud, it's just a question of timing and valuation discipline. Investors need to separate AI theme. From AI fundamentals, these companies have real cash flows for CapEx, and they're even buying back stock if the economy slows. What's the Fed's next move after this cut? Well, I would think that there would be another 25 basis points in December. After that, I do think that they pause and watch the labor data. They don't wanna burn all their ammo before 2026. What are bond investors missing right now? They're underpricing the stickiness of inflation. Real yields might not fall as fast as people expect, and there is some risk still to duration. What's your take on small caps? Well, small caps are cheap, but tricky. If the fed sticks, the landing and grows stabilizes, they could rip for a minute. But right now, funding costs still pinch. So selective exposure only, and I am not on the small cap train. What's one contrarian idea for the next six months? It's not contrarian to me because I've been in this boat, but Europe valuations are discounted. The ECBs done hiking and earnings expectations are so low. They're low enough to beat. Any major bright spots in housing, well sentiment's improving. The NAHB index jump from 32 to 37. Builders are cutting prices and and they're finding some demand. If rates do drift down, housing stabilizes faster than people may think. Our retail investors driving this rally. Well, they're definitely participating seven weeks of net buying, but the market's still institutionally led. Retail's just adding fuel to the momentum right now. What is your favorite defensive play right now? Well, on paper, people will think high quality staples with pricing power and strong balance sheets. However, I am not a believer. My defensive plays are more in the infrastructure space. How do you read the global picture? After the IMF meetings, the message was resilience with. Fatigue. The world's adjusting to Trump era tariffs as the new normal, but no one's collapsing. So growth is slowing, but not stopping. What's one metric you are watching more than usual? Real time jobless claims estimates the sell side has'em around 217,000 and any sustained uptick would signal labor softening. In your opinion, is crypto relevant again? Well, Bitcoin's off its lows, but still consolidating. It's behaving more like a risk asset than a hedge. The next leg really depends entirely on liquidity, not the hype. Last one. If you could summarize market psychology in one phrase right now, what would it be? Well, one phrase, I guess I would say cautious greed. People know risks are building, but they can't resist the momentum. Perfectly said. Alright, we'll wrap it up there. Sounds good. Well, next week we got the Fed and a tidal wave of earnings. Plenty to digest. Appreciate it, Scott, catch you again in two weeks. Thanks Chris. See you then. I also want to thank our audience for tuning in and remember to please submit your questions via email to general at Paramount A-S-S-O-C. Dot com. For now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.