Cambria's Faber: U.S. market is the world's most expensive, and that story ends ugly

Meb Faber, chief investment officer at the Cambria Funds, says that "extremely high valuations are a weight that's hard to overcome," and that the United States is currently "the most expensive country across the board." He notes that when a country ends the year with a price/earnings ratio above 40, the average future 10-year returns are zero. As a result, Faber is suggesting that investors diversify internationally, consider gold — which her describes as being "like your crazy cousin Eddie" coming to the family holiday party — and more. David Trainer, founder and president at New Constructs, says that companies can manipulate earnings numbers in ways that keep investors interested, but which make future earnings misses most likely, and he puts those stocks that are likely to miss earnings in "The Danger Zone." Trainer says that 72 members of the Standard & Poor's 500 are currently overstating earnings by 10 percent or more. Trainer singled out NRG Energy, which has street estimates of 35 cents per share, but which he says is more likely to generate 6 cents per share in profits. Chip Lupo discusses the 2025 Early Holiday Shopping Survey from WalletHub, which showed that nearly half of American consumers aren't waiting for Halloween to start their holiday shopping, but rather they will begin this month (if they haven't started already).  

Eddie Ghabour, chief executive officer at Key Advisors Wealth Management, says "the worst is behind us from the economic slowdown," and he expects growth to accelerate at the end of the year and into the first quarter. Combined with rate cuts, it will add fuel to a market that he says is clearly inflating a bubble, with that performance boosted as well by the longer a government shutdown rolls. He says investors should not fear the bubble, because the market will telegraph the bursting. "You can make the most money in bubbles," he says. "The key to bubbles is riding it up but making sure you are not all in when that bubble pops." Ghabour is not the only one talking about the market being in a bubble, as David Lundgren, chief market strategist and portfolio manager at Little Harbor Advisors, says the technicals show a market clearly in bubble territory, but in the long upward phase of that cycle. That's why he is fully invested, for now, despite expecting an ugly downturn that he thinks could begin next year. Drake Hicks, head of impact investing at Variant Investments, discusses the unusual intersection of closed-end funds with impact investing, which goes beyond ESG (environmental, social and government principles) to invest in projects which have a purpose beyond just a profit margin. The firm runs the Variant Impact Fund, a high-yield closed-end interval fund whose assets are aligned with the United Nations' sustainable development goals, and Hicks talks about how shareholders benefit from the interval structure.

Rob Spivey, director of research at Valens Securities, says many investors believe the current stock market run to record levels has been about price momentum, but he says that earnings momentum has shown growth that is strong enough that it should calm the nerves of investors who think the artificial intelligence business is inflating a market bubble. Valens' research revolves around "uniform accounting," and Spivey discusses proposals that would change how often public companies must report earnings, and talks about why he believes it would not have as much impact on the market as many observers expect. Todd Rosenbluth, head of research at VettaFi makes the newest fund created by Vanguard — an emerging markets fund that excludes China — his pick for "ETF of the Week," noting that the ETF is a solid passive adjunct to actively managed emerging-markets strategies. Excluding China, Rosenbluth noted, is a strategic choice that may depend on an investor's gut feeling over the potential for a trade war or bigger tariff problems in the future. Financial adviser Dan Dorval of Dorval & Chorne discusses 'Financial Success for the Rest of Us: Quality of Life Planning for Mainstream America," the book he wrote 20-plus years ago and just revised. He discusses how planning has changed but how developing investor discipline has remained one of the key factors of whether a person will achieve financial prosperity.

Cheryl Smith, economist and portfolio manager at Trillium Asset Management, says the equity market is "very excited, very ecstatic and continuing to move up," but she warns that stock valuations are extended and she says the market is setting up a fall. Smith says two phrases -- "The Emperor is wearing no clothes" and "The band played on" -- tell the story of this market, but she expects that when the investing public wakes up to see damaging impacts of tariffs and other policies, the market will fall hard. She's not expecting that turn soon, but she says it's unavoidable if current policies are followed through to their economic conclusion.   Vijay Marolia, chief investment officer at Regal Point Capital, brings his "five-lens approach" to stock research to the Market Call. He warns that investors should be worrying about euphoria over recent market results, noting that if your bartender or barber is giving you stock advice, it's a sign that the market is overbought and investors should be patient. Natalie Iannello discusses a study done for IPX1031.com which showed that 2 in 5 Americans are changing investment strategies and moving money due to a tough economy, with 42% shifting to safer investments and 36% adding new income streams. Reducing debt is a key priority, but Iannello says an alarming number of Americans have tapped their emergency assets or sold investments to get by in current conditions.

Jeremy Schwartz, global chief investment officer at WisdomTree, says he "would like the Fed to be lower," and says that rate cuts from the central bank will help to spur small-cap stocks starting to participate more in the rally. Schwartz likes the looks of international stocks, but particularly Japan, which has reached record highs and finally recaptured peaks first experienced decades ago, but which Shcwartz says is valued in a way that supports significant future growth. Schwartz, co-author of "Stocks for the Long Run," says that while short-term turmoil could send the market for a loop, it is positioned well to keep delivering decent long-term returns. Toni Turner, president of TrendStar Group, says it would "be normal and natural right now for this market to move down a little bit," because the market has reached and held highs, but she says that the technicals "are all beautiful right now," even if she is holding her breath a bit right now. Turner says that as along as the Standard & Poor's Index remains among its 20- and 50-day moving averages, "she's breathing fine," but she is prepared to "get wise" and do some profit-taking when the trend starts to weaken. David Goodsell, executive director of the Natixis Investment Managers' Center for Investor Insight, discusses the firm's 2025 Global Retirement Index, which assesses retirement security in 44 developed countries to see how well those nations are positioned to support aging populations. The index found again this year that Norway is the best-prepared country, with the United States finishing in the middle of the pack both among all countries and among the biggest nations; only one of the biggest nations even makes the top 10 in this annual study, which Goodsell notes may be due to the increased challenges that come with having so many more people reaching retirement age.

Joseph Brusuelas, chief economist at RSM, says the economy is reasonably healthy and has been resilient amid difficult headlines, which make it likely to accelerate as rate cuts, tax cuts and deregulation kick in and provide a spending boost. At the same time, Brusuelas says he thinks the market is building "bubbles and period of over-speculation where there's a concentration of risk in one area of the equities market," which could lead to "a healthy correction" that brings the market back to earth and squeezes out the speculators. David Trainer, founder and president at New Constructs, has long disliked the electric vehicle industry, noting that the stocks are priced more on hype than on any proven ability to deliver. Today he puts Luci Group in The Danger Zone, noting that the company has persistent ongoing losses, high cash burn, heavy shareholder dilution and is facing profitable competitors in a market that is seeing demand fall. Worse yet, he says the stock is priced as if it will "sell more vehicles than the best-selling passenger car in America." Sam Bourgi of Investors Observer discusses the latest Big Mac Housing Index, which showed that it now takes nearly 71,000 Big Macs from McDonald's priced at the national average, to buy the median-price house in the United States, and what those changing dynamics — housing prices that actually have fallen in the last three years against rising inflation on food prices — means for the broad economy.

Dan Zanger, chief technical officer at ChartPattern.com, says "the market wants higher" and is filled with cup-and-saucer patterns that "are waiting for handles to form," which is typically a bullish sign for individual names. Zanger says the broad market is showing some technical signs of resistance, but says investors should stick with what has been working. He did note, however, that for all of the publicity they get, not all of the Magnificent Seven stocks have been in the market's sweet spot from a technical standpoint; he favors Nvidia and Alphabet (google) at this point.  Scott Stevens, chief executive officer at Grays Peak Capital, looks at the private-credit markets, and particularly at how defense-critical spending is being impacted by the government shutdown. He also discusses private equity, venture capital and real estate markets and how they are responding to a new rate-cut cycle and more. Ray DiBernardo, portfolio manager of the XAI Madison Equity Premium Income fund, says that covered-call strategies have become increasingly popular of late, as investors want to goose income while reducing market risk. While investors should use covered calls more as an income-oriented investment, their outperformance during the market downturn in 2022 has many investors also using them to hedge market risk. Plus, Chuck follows up on a suggestion from earlier in the week that the government shutdown should spur everyone to take a financial stress test by answering a listener's question on just how to implement that strategy.

Ed Campbell, the founder of Red Hook Phoenix Investment Partners, says that key shifts in the economy triggered by advancements in artificial intelligence and automation, changes to the financial situation, shifting geopolitics and more will make it so that markets and economies don't get so far off-kilter that they create boom and bust patterns. He says recessions and downturns will continue, but that the market will act more like it has in recent years, where it has climbed the wall of worry to new heights overcoming stumbles but avoiding crashes. Todd Rosenbluth, head of research at VettaFi, acknowledges that the government shutdown and other current conditions have made investors nervous, so his ETF of the Week is a pick with built-in downside protection to calm the nerves. In the Market Call, Adam Coons, chief investment officer at Winthrop Capital Management, discusses how he uses ETFs for a core-and-satellite investment approach that currently is neutral to market conditions, meaning that he believes investors should be rebalancing portfolios to return to planned asset allocations.

Jeff Blazek, co-chief investment officer of multi-asset strategies for Neuberger Berman says that "valuation becomes less important when you have high conviction in sustained growth of earnings, economic growth and high return on equity," which is why he's focused on the earnings portion of price/earnings and is plowing forward with stocks even with the markets near record highs. Blazek acknowledges that valuations are stretched, but says that is much more important during times when there is less confidence in the economy continuing to grow and power solid earnings. Blazek likes the looks of international investments — particularly Japan and China — because they have better valuations at a time when global growth appears likely to pick up. David Busch, co-chief investment officer at Trajan Wealth, says he is worried that the impact of the government shutdown could be felt most in delayed economic numbers, which could impact what the Federal Reserve does next. When it comes to the market, Busch is in the same camp as Blazek, thinking the earnings power has the potential to make valuations less important, though he notes he will be looking for that trend to change when third-quarter earnings are released soon. Ivana Delevska, founder of Spear Invest — which runs the Spear Alpha ETF — brings her approach to industrial technology to the Market Call.

Kristina Hooper, chief market strategist at Man Group, says that investors need to "keep on dancing" while the music is playing, but she says the tunes are about to change or stop, with valuations setting the market up for a decline of up to 20 percent that could might take a while to get here but which could show up this year if the market has a bad reaction to the Federal Reserve cooling on rate cuts. She notes that the rate-cut cycle could cut short the current small-cap rally, contributing to a down or sideways period. Hooper isn't backing away from domestic markets, but says investors should rebalance portfolios and lean into the better valuations available in foreign markets. She's not the only one expecting the market to take a breather or more here, as Mike Passante, director of financial planning at Focused Wealth Management says that technical indicators show that the stock market may be hitting resistance levels now, which could lead to a small pullback as the market resets and refreshes itself. Passante says the market has room to rebound to levels that are slightly higher than today, but he notes any more significant gains this year would require a big increase in investors' animal spirits near year-end. In the Book Interview, Victoria Bateman discusses “Economica: A Global History of Women, Wealth, and Power,” and introduces us to some women whose roles helped to make the world rich but whose exploits have mostly been ignored or forgotten by history.