Dancing in a room in which the clocks have no hands

Published in The Sunday Times on 2nd November 2025.

I've a general sense that the financial commentary I read has a distinct bearish bias. This would make sense. Our brains respond more intensely to threats and negative stimuli – so negative commentary is more “newsworthy” from a commercial standpoint. As such, financial journalism gravitates disproportionately toward impactful stories which tend to be negative events. 

One of the Financial Times’ pundits I regularly read, Robert Armstrong, admitted as much in a recent column, with an interesting take on the incentives. 'A financial pundit who predicts that a systemic crisis is not imminent is a special sort of sadist. If you get it wrong, it’s the kind of mistake people remember, whereas dire prognostications are forgotten the instant they are falsified.'

If we don’t hold bearish market Cassandra’s to account, yet never forget their more blasé counterparts, is it any wonder the financial world seems perpetually stuck at DEFCON 1?

The reason I’m writing about this now, and not for the first time this year, is that warnings of a bubble seem to be coming from all sides. I think it’s time to take stock and see if there’s more signal than noise in this. 

One of the pieces I recently read recounted Buffett’s famous (and prescient) warning in his 2000 shareholder letter.  

'Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball. They know that overstaying the festivities—that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future—will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.'

In the search for evidence to back up the bubble thesis, the trail runs hot in Artificial Intelligence. According to the Financial Times, US venture capitalists have splurged $161bn so far in 2025, two thirds of their total spend, on AI with precious little to show in terms of return on investment. And the web of 'circular' deals between AI model makers, compute providers, and chipmakers has a definite whiff of the dotcom era. 

Nvidia recently agreed to invest as much as $100 billion in OpenAI to help fund a data-centre buildout, which OpenAI in turn committed to filling with millions of Nvidia chips. OpenAI signed a partnership with Nvidia rival Advanced Micro Devices and is poised to become one of AMD’s largest shareholders. OpenAI confirmed it had struck a separate $300 billion deal with Oracle to build out data centres in the US. Oracle, in turn, is spending billions on Nvidia chips for those facilities. And so on.

And valuations are beyond frothy. Ten lossmaking artificial intelligence start-ups have gained close to $1tn in valuation over the past 12 months according to the Financial Times. And in the public markets there are a plethora of examples, chief amongst which is Palantir Technologies which is trading on a forward PE of over 200 times. PE maybe too blunt a metric to use in assessing a company like Palantir, but none of the other metrics I have seen provide comfort. 

At a more macro level, concerns are aplenty – tariff wars, slowing economy, massive deficits and sovereign debt, sticky and rising inflation, ongoing conflict and geopolitical risks. Aggregate market valuations are pretty stretched, but nowhere near the nosebleed territory of Palantir.

On the positive side of the ledger, unlike the dotcom era, the vast majority of investments the hyper-scalers are making are not debt-funded. Whatever about Governments, household and corporate balance sheets are in good shape. Interest rates look set to fall. The deregulatory bias of the US government is growth positive. And earnings growth has been strong – with bullish expectations for 2026/27. I’m open to the argument that bullish expectations is a net negative. 

This probably isn’t a balanced set of risks. If I was to scorecard this, I’d have to say the minus column is in the ascendancy.

But here’s the bottom line, if your bias right now is bearish – then consider this:

Being short the market, either explicitly or through holding cash, is a low odds bet – markets go up over time and much more frequently than they decline. 

The chance to invest at lower prices (whatever about valuation) appeals to your greed. If that’s the case – then consider this:

Market sell-offs, even the intense ones associated with bear markets, have always proved temporary. A bear waiting for a better entry point exposes you to a much bigger risk than transitory loss – missing out entirely. You may avoid a drawdown, but expose yourself to a much more pernicious risk – inflation. Prioritising volatility over inflation is like the tailgating driver that prioritises time over safety - the occasional tragedy is never worth the minutes saved. 

It’s hard to be cheerful about financial markets right now, no matter what your reading source. It’s mostly ever thus. This is not an argument to blithely keep on dancing until the music stops. Fortune has favoured the cheerful over the past fifteen years or so, despite many occasions when the power went out. There’s a lesson in that.
 

Source: Data is sourced from Bloomberg as at market close 31st December, returns are based on total indices in local currency terms, unless otherwise stated.

Gary Connolly is Investment Director at Davy. He can be contacted at gary.connolly@davy.ie or on X at @gconno1.