HOLT
HOLT: Are we approaching peak market optimism? Four reasons not to be complacent
2026 CFROI on track to reach all-time high in the US and post 2008 peaks ex-US
2026 CFROI on track to reach post crisis highs
2026 CFROI on track to reach post crisis highs
Markets are hitting new highs with consensus expecting the US aggregate CFROI, CFROI is HOLT’s measure of corporate profitability, to reach new records this year. Forecast improvements extend beyond AI-driven sectors. The CFROI in the rest of the US market, Europe, and Japan are all on pace for their highest level since the Global Financial Crisis.
Reasons for optimism
Reasons for optimism
There are good reasons for such optimism – US tax cuts, loose monetary policy, stronger OECD indicators, and the promise of AI-driven productivity gains – all supporting a positive CFROI outlook.
Caution amid optimism
Caution amid optimism
Despite these positives, the near-universal bullishness raises the question of how much further markets can realistically climb. Not all is healthy beneath the surface, suggesting caution:
Gap between Wall Street exuberance & Main Street caution
Economic data remains resilient, but there is a stark contrast between the US Economic PE, now standing at its 92nd percentile most expensive in 30 years, and consumer sentiment which remains around historical lows. Similarly, the US Economic Uncertainty Index is less extreme than it was, but it remains at its 90th percentile highest level in 30 years.
Rich valuations
US valuations are now at levels that have historically preceded more muted 12-month forward returns. Hedge fund crowding in US stocks and AI names is high, and retail stock allocation is at levels not seen since 2000.
AI investments
One in three dollars of US Capex among listed companies is devoted to AI build-outs. Despite the inherent uncertainty in the future cash flows from such investments, the market still appears to be assuming record value creation.
Financial leverage
Over half of the c USD 400bn of unfunded corporate spending commitments in the US markets comes from sectors linked to AI’s success. This has led companies to rely increasingly on debt funding to bridge the gap, introducing new idiosyncratic risks for companies.
HOLT Global Viewpoint: Are we approaching peak market optimism? Four reasons not to be complacent
HOLT Global Viewpoint: Are we approaching peak market optimism? Four reasons not to be complacent
