The bull charges, but a snake bites: Why the next market move depends on the invisible leverage bene

✍️ Editorial

Markets love a good narrative, and right now, it’s the return of the bull. U.S. equities are charging higher, gold is gleaming, and confidence has returned after two years of economic fatigue. Inflation is proving sticky but manageable, and investors are rediscovering their risk appetite.

But beneath this optimism lies a quieter, more complicated story. The private credit boom, once hailed as Wall Street’s most creative source of yield, is now showing cracks. Higher-for-longer interest rates are straining borrowers, refinancing options are shrinking, and the opacity of non-bank lending is creating a shadow risk few are pricing in.

This divergence, between market exuberance and credit fragility, may define the next phase of the cycle. A mild correction could refresh the bull market, but a deeper credit squeeze could expose the limits of leverage-fueled growth.

For investors, the message is simple: stay optimistic, but not blind. The next leg up will depend less on earnings headlines and more on how quietly the credit gears keep turning beneath the surface. Here are the key topics to look at:

 

🐂 The question of the week: Time for a Bull Market Correction?

Gold glitters, stocks stretch, and private credit shadows darken the outlook

If 2024 was the year of disbelief, 2025 is the year of divergence, between the glittering headlines of market recovery and the quieter rumblings of financial strain beneath the surface.

The S&P 500 has rallied since April’s “Liberation Day” selloff, marking the start of what many call a new bull market. Inflation is cooling but still alive, earnings revisions have bounced back, and investors are once again betting on growth. Yet at the same time, gold has soared nearly 50%, private credit stress is building, and U.S. consumers are feeling the pinch of higher borrowing costs and tighter liquidity.

The question isn’t whether this is a bull market; it is! The question is whether it’s running too far, too fast in the shadow of a credit crunch. And remember, the market is driven by AI-related investments, so mostly concentrated around a few secular growth trends. Here is the general view:

 

Theme	Direction	Implication
Bull Market	📈 Positive	Still intact but due for a correction
Inflation	🔥 Persistent	Supports nominal growth but pressures consumers
Private Credit	⚠️ Negative	Emerging systemic risk
Gold	🪙 Positive	Safe-haven strength amid uncertainty
U.S.–China	⚔️ Mixed	Adds volatility to industrial and tech sectors
Liquidity	💧 Tightening	Amplifies correction risk
Consumer Credit	💳 Weakening	Drag on discretionary and small-business growth

 

 

🟡 Gold’s relentless climb — safe haven or sentiment bubble?

Gold has been one of 2025’s star performers, surging nearly 50% to break the $4,000/oz mark before retreating slightly in October. The rally has been fueled by a weaker dollar, aggressive central bank accumulation (now exceeding U.S. Treasuries in reserves for the first time since 1996), and a wave of inflows into gold-backed ETFs.

Morgan Stanley now projects gold could reach $4,400/oz by the end of 2026, underpinned by rate cuts, persistent geopolitical uncertainty, and strong institutional demand. However, risk of demand destruction looms: jewelry consumption has weakened sharply, and if prices remain elevated, central banks may slow purchases.

🕰️ History Rhymes: Lessons from the 1980s Gold Cycle

Today’s rally bears a striking resemblance to the late 1980s surge, when the dollar weakened post-Plaza Accord, the Fed pivoted to easing, and investors sought protection from policy missteps. Just as then, gold’s climb today is being driven by falling real yields, currency realignment, and monetary distrust.

Back then, the rally persisted until the Fed reasserted its inflation-fighting credibility. Unless we see a similar tightening pivot, the 2025–2026 gold rally may still have room to run, supported by structural demand, global diversification, and persistent geopolitical risk.

Here are the key facts to look at:

Theme	Late 1980s Gold Cycle	2025 Gold Cycle
Monetary backdrop	Volcker-era tightening had crushed inflation; gold rallied again when the Fed pivoted toward easing (post-1985 Plaza Accord).	Fed is pivoting from a tightening stance to rate cuts amid slowing growth and heavy fiscal deficits.
Dollar dynamics	The U.S. dollar weakened sharply post-Plaza Accord as global powers rebalanced trade competitiveness.	Dollar weakening expected again as U.S. growth slows and deficits expand.
Geopolitics	Cold War uncertainty, oil price volatility, Middle East tensions.	Renewed Middle East conflict, U.S.-China trade frictions, and global de-dollarization.
Central bank policy	Central banks began cautiously rebuilding gold reserves after heavy selling in the early 80s.	Central banks are massive buyers — gold holdings now exceed U.S. Treasuries for the first time since 1996.
Real rates	Falling real yields boosted non-yielding gold assets.	Real rates are trending lower again as inflation stays sticky, but nominal rates decline.
Investor psychology	An inflation hedge and diversification tool after equity bubbles (Japan, early tech).	Similar safe-haven psychology after years of equity multiple expansion and geopolitical stress.

  

 

📈  The bull market is real — but due for a breather

According to Mike Wilson, Morgan Stanley’s Chief Investment Officer, “We are in a new bull market, even if a correction is coming.”

Wilson argues that April marked the end of a three-year “rolling recession” across the U.S. economy. Since then, earnings momentum has rebounded and inflation has stabilized at levels that support nominal growth. The result: a classic V-shaped recovery in stocks.

But the rally is frothy, and Wilson warns of a likely 10–15% correction — a healthy reset in an otherwise intact uptrend. Three pressure points could trigger it:

1. Rising trade tensions with China, as new tariffs loom in November.
2. Liquidity strain, as the Fed’s quantitative tightening drains bank reserves.
3. Earnings fatigue, with revisions flattening after months of gains.

Importantly, Wilson sees the current environment as shorter, hotter cycles, two years up, one down, rather than the decade-long expansions of the pre-COVID era. In this new regime, inflation isn’t always bad news: “Stocks are now a hedge against inflation,” he says. “High-quality equities may even offer a cheaper inflation hedge than gold.”

 

 

💳 The private credit crunch: The quiet risk no one can ignore

While equities and gold dominate the headlines, private credit, the $2 trillion shadow-lending market, may hold the key to how sustainable this bull market really is.

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