
History can turn on a dime, and so can markets. And yet, markets have barely budged in response to recent unsettling news. Within the past few weeks, an assassination attempt on a popular, polarizing political figure sent shockwaves through the U.S., underscoring the fragility of our political climate. At the same time, global tensions escalated, with Russian drones striking targets in both Ukraine and Poland, and Israel widening attacks in the Middle East. Commentators have described this as a moment when the future could tip in one of several directions—a “hinge point” that is difficult to fully grasp as it unfolds.
Against this backdrop, U.S. markets have been quietly resilient. Major equity indices notched fresh highs, with both stocks and bonds rallying on expectations that the Federal Reserve will cut interest rates at the conclusion of its meeting tomorrow. Investors appear willing to look past today’s crosscurrents, betting that easier monetary policy will support growth — a striking display of optimism, even though policy experts warn that a strategy of tolerating higher inflation carries steep potential costs. These include unanchored inflation expectations, a loss of confidence in U.S. institutions, and a more cautious investment climate as investors demand greater returns to take on risk. For investors, the challenge is tuning out the noise — staying disciplined through conflicting signals, avoiding rash decisions, and keeping long-term goals in clear view.
Risks Rising Beneath the Surface
Beneath the optimism lies a set of concerns that can’t be ignored. Inflation remains stubbornly above the Fed’s 2% target, with core consumer prices showing only modest improvement. The U.S. labor market, while still healthy, has begun to show cracks, including downward revisions to prior job growth numbers.
Alongside this, the country’s fiscal position is deteriorating rapidly. Net public debt has surged from roughly 30% of GDP 25 years ago to around 100% today, with projections suggesting it could climb toward 170% by mid-century. Interest costs on that debt are already approaching $1 trillion annually, making them one of the largest single line items in the federal budget.
Economists like Kenneth Rogoff warn that this level of indebtedness is not just an economic problem but a potential threat to U.S. global influence. Rising debt could eventually undermine the very foundations that have supported the dollar’s role as the world’s reserve currency and the country’s ability to project power.
In parallel, other structural risks are coming to light. The private equity industry now sits on roughly $6 trillion in assets across nearly 12,000 portfolio companies. Over time, firms have held onto prized assets longer, squeezing out as much value as possible and leaving little upside for public market investors. Now, with higher interest rates making profitable sales harder, they are struggling to find buyers willing to meet their price expectations.
To bridge this gap, many firms have turned to creative tactics like “continuation vehicles” — effectively selling assets back to themselves to buy time and generate liquidity for investors seeking an exit. At the same time, the industry has been lobbying to expand access to private equity through retirement plans such as 401(k)s, which hold nearly $9 trillion for 70 million Americans. Proponents call this “democratizing” investing, but critics warn that these funds come with steep fees and conflicts of interest, including 1%–2% annual management fees and 15%–20% of profits, plus limited liquidity and little transparency into valuations.
This dynamic points to deeper fragility in parts of the financial system that have expanded rapidly in recent years but remain largely opaque to most investors. And yet, despite these hidden vulnerabilities — from soaring public debt to opaque private equity risks — markets have continued to press higher, showing resilience even as risks accumulate beneath the surface.
A Market That Seems Unfazed
Bond yields, after spiking earlier this year, have retreated as investors priced in rate cuts. Equity valuations remain lofty, with some new IPOs commanding eye-popping prices reminiscent of earlier speculative cycles.
This resilience reflects a market that’s looking past today’s noise, supported by strong corporate earnings, steady consumer spending, and expectations that lower interest rates will help sustain growth. It doesn’t mean the risks have disappeared — far from it. But for now, investors are choosing to focus on what’s working rather than what could go wrong.
Robert Armstrong of the Financial Times (September 10, 2025) highlights several reasons for cautious optimism, from solid corporate earnings to strong household balance sheets and a supportive policy backdrop. These factors don’t erase the risks, but they help explain why markets have stayed calm despite the uncertainty. As Armstrong puts it, investors shouldn’t ignore the headwinds — but neither should they underestimate the resilience still present in the system.
August Market Recap
Stepping back from the headlines, August was a strong month for both stocks and bonds.
- U.S. equities logged their fourth consecutive monthly gain, with the S&P 500 posting five record closes during the month.
- Small-cap stocks sharply outperformed large caps, and value stocks beat growth across all size categories.
- International developed markets outpaced the U.S., while emerging markets posted solid but comparatively smaller gains.
On the fixed-income side, U.S. bonds rallied as Treasury yields declined. The two-year Treasury yield fell 33 basis points to 3.63%, while the 10-year yield dropped 15 basis points to 4.23%. The Bloomberg U.S. Aggregate Bond Index returned 1.2% for the month, lifting its year-to-date gain to 5%. Municipal bonds also advanced, though they lagged Treasuries.
These results reflect a market that, for now, continues to believe in a “soft landing” scenario — one in which growth slows without tipping into a deep recession and inflation gradually moves lower.
The Psychology of Money: Staying Unbreakable
In his book The Psychology of Money, author Morgan Housel explains that success in investing rarely comes from intelligence or perfectly timing the market. Instead, it comes from behavior — staying calm, disciplined, and focused when the world feels chaotic.
Compounding doesn’t depend on spectacular returns. It depends on good returns, sustained over long periods, and not interrupted by panic or catastrophic mistakes. The most important thing you can do as an investor is simply stay in the game, even when headlines tempt you to run for the exits.
Staying unbreakable as an investor doesn’t come from flawless timing or extraordinary insight. It comes from resisting the temptation to take outsized risks, even when potential rewards seem irresistible — and from how you behave when the world feels chaotic, uncertain, and frightening. The greatest strength you can cultivate as an investor isn’t prediction, but steadiness.
No one can predict the next crisis, nor can we control the timing of bull and bear markets. What we can control is our response. By staying invested, maintaining a sound plan, and avoiding unforced errors, you allow compounding to do its quiet, powerful work over decades. In the end, resilience — not prediction — is what leads to lasting success.
If you have questions about your current allocation or would like to review your overall approach, please reach out. We’re here to help you navigate uncertain times with clarity and confidence, staying focused on the future.
Regards,
John Gorlow
President
Cardiff Park Advisors
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