The "Everything All at Once" Economy
Stocks, gold, crypto, and bonds are all soaring animated by contradictory forces, while the dollar collapses, the economy weakens, and capital quietly reorganizes around new centers of power.
On Wednesday, October 1st, 2025, two things happened that shouldn’t make sense together.
The US government shut down at midnight, suspending crucial economic data releases and leaving the Federal Reserve to navigate monetary policy essentially blind. That day, the stock market hit another record high. The Dow Jones briefly touched 47,000, the S&P 500 notched its 31st record close of the year, and investors celebrated like nothing was wrong.
Welcome to the paradox of late 2025, where financial markets have completely divorced themselves from the underlying economic reality. Stocks are soaring. Gold just blasted past $3,900 an ounce, posting its best performance since 1979. The dollar is having its worst year in over two decades. And somehow, all of this is happening simultaneously, as if markets are pricing in both euphoria and disaster at the same time.
The story of how we got here is a case study in what happens when central bank policy, technological revolution, and political chaos collide. It’s also a story about how far markets can drift from reality before gravity reasserts itself.
The Rally That Won’t Stop
Let’s start with the numbers, because they’re genuinely remarkable.
The S&P 500 is up about 13% year-to-date through early October, having risen 3.5% in September alone (its best September performance since 2010). The index has posted five consecutive monthly gains. The average US stock fund has climbed 11% this year, putting it on track for double-digit gains three years running. International stocks have actually outperformed, up 17% year-to-date, which almost nobody saw coming.
This isn’t just the tech giants carrying the load anymore, though they’re still doing plenty of heavy lifting. The Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) now account for 37% of the S&P 500’s market capitalization, the highest concentration on record. But the rally has been broadening. Small-cap stocks, measured by the Russell 2000, hit levels not seen since November 2021. Industrial stalwarts like Caterpillar, healthcare giants like Johnson & Johnson, and insurance companies like Travelers have all notched record highs.
The fuel for this rally comes from two sources that keep reinforcing each other. First, there’s the AI boom, which continues to generate genuine enthusiasm and actual earnings growth. Companies are spending enormous sums building out infrastructure, and the semiconductor sector (Nvidia, AMD, Intel) keeps delivering results that justify at least some of the optimism. Second, there’s the Fed’s pivot to cutting rates, which came in September and is now almost certain to continue through year-end. Lower rates make stocks more attractive relative to bonds, and the market has decided that’s reason enough to keep buying.
But here’s where it gets interesting. While stocks march upward, three other major asset classes are screaming that something is very wrong.
Gold’s Explosive Warning
Gold doesn’t usually move like this. The metal is supposed to be boring, a steady store of value that inches higher during uncertain times. What it’s not supposed to do is surge 47% in nine months.
But that’s exactly what happened. Gold futures consistently hit new record highs through late September and early October, ultimately trading above $3,900 per troy ounce. The September gain alone (11.9%) was the strongest monthly performance since August 2011, when the metal rallied during the US debt ceiling crisis and the escalating Eurozone sovereign debt mess. Gold is on track for its best annual performance since 1979, when it gained 127% amid the oil crisis and runaway inflation.
The rally is being driven by what traders call “aggressor bids” from multiple directions simultaneously. Central banks, particularly in emerging markets, continue diversifying their reserves away from dollar-denominated assets. Exchange-traded fund investors poured nearly 100 tonnes into gold ETFs in September alone, the fastest monthly rate since April. Hedge funds hold record long positions totaling $73 billion, according to CFTC data, driven partly by fear of missing out as the rally accelerated.
The fundamental case for gold right now is straightforward: political chaos (the government shutdown), soaring national debt approaching $37 trillion, tariff-driven inflation that won’t quit, questions about the dollar’s reserve currency status (its share of global reserves has shrunk to 58% from 72% at the turn of the millennium), and the lower opportunity cost of holding non-yielding assets as interest rates fall. When your government can’t keep the lights on and your currency is in freefall, gold starts looking pretty attractive. But there’s another layer to the gold rally: growing concern that the AI-driven stock boom has run too far, too fast. With valuations at record highs and warnings from figures like Jeff Bezos and Goldman’s David Solomon about an “industrial bubble,” investors are hedging against the possibility that a market correction could puncture the euphoria. Gold becomes a way to stay in the game while also betting that the game might end badly.
Silver and platinum are along for the ride. Silver futures are up 60% year-to-date, including a 29.2% surge in the third quarter alone, recording a seven-week winning streak (the longest since August 2020). Platinum climbed for nine consecutive weeks, its longest streak since May 2006. When all the precious metals rally together like this, it goes beyond gold-specific dynamics. Investors are worried about currencies losing value and governments struggling to pay their debts.
The Dollar’s Historic Collapse
Speaking of currency stability, the dollar is having a nightmare year.
The US Dollar Index (DXY) is down nearly 10% year-to-date through early October, marking its worst annual performance since the early 2000s. The dollar has been falling for four consecutive days around the government shutdown, with each day bringing fresh selling pressure. The euro appreciated 2.8% against the dollar between early June and mid-September, and keeps climbing.
This isn’t supposed to happen. The dollar is the world’s reserve currency, the safe haven that investors flee to during times of stress. But right now, stress is coming from inside the house. The government shutdown, the chaotic policymaking, the threats to Fed independence, the soaring national debt (approaching $37 trillion), the persistent inflation driven by tariffs, all of it is undermining confidence in American institutions and the currency they issue.
The composition of Treasury buyers tells a worrying story. Since 2021, private foreign investors have increased their Treasury holdings by $2.3 trillion, while official holdings (central banks and sovereign wealth funds) fell by $301 billion. This shift from stable, long-term official buyers to more volatile private investors means the Treasury market is now more susceptible to sudden moves and price shocks. When sentiment shifts, these private investors can head for the exits quickly, and there’s no central bank standing ready to absorb the selling.
The dollar’s weakness is creating a split in the US stock market. Multinational companies with significant overseas revenue (think Microsoft, Meta, big pharma) are seeing their foreign sales translate into more dollars when they bring the money home, boosting reported earnings. Domestically focused companies, meanwhile, are getting squeezed by higher import costs from tariffs and have no currency tailwind to offset the pain. The market internals reflect this divergence, with large-cap growth (often multinationals) significantly outperforming value stocks (often domestic).
The Bond Market’s Mixed Signals
The bond market, usually the place where adults gather to make sober assessments of risk, is sending wildly contradictory signals.
US Treasury yields have been falling as investors price in more Fed rate cuts. The 10-year Treasury yield dropped below 4.1%, declining by about 35 basis points over the summer review period. The 2-year yield fell to around 3.57% following the weak ADP jobs report. Investment-grade bond funds have returned 3.8% to investors year-to-date, profiting from the decline in yields.
This creates an interesting puzzle. Normally, when fiscal concerns loom larger (debt approaching $37 trillion, interest payments exceeding defense spending, credit downgrades from all major agencies), bond investors should demand higher yields to compensate for increased risk. But yields are falling instead, which means the bet on Fed rate cuts due to economic weakness is overpowering the fiscal risk premium. Bond investors are buying Treasuries because they expect the Fed will need to keep cutting rates to prevent a recession. Lower rates ahead mean today’s bonds, which lock in current rates, become more valuable. For now at least, the fear of economic decline is trumping concerns about America’s ability to service its debts.
But there’s a tension in these numbers: yields around 4% are high enough that bonds are genuinely competitive with stocks for the first time in over a decade. During the 2010s, 10-year yields often sat below 2%, making stocks the only game in town for decent returns. Now, you can get 4% risk-free from Treasuries, which makes the stock market’s 13% gain this year look less compelling on a risk-adjusted basis. In sum, the bond market is essentially saying the economy will weaken enough to justify continued rate cuts, and that recession risk currently trumps fiscal solvency concerns.
On the other hand, corporate credit spreads have tightened to levels that leave almost no room for error. The spread on investment-grade corporate bonds over Treasuries fell to 0.74 percentage points in September, the lowest level since 1998. Junk bond spreads are near the record lows set in 2007, hovering around 280 basis points. What this means in practice: investors are accepting razor-thin compensation for the risk of lending to corporations, essentially assuming that defaults will stay low, the economy will stay strong, and nothing will go wrong. Companies capitalized on this demand, issuing $210 billion of investment-grade bonds in September alone, the busiest September on record.
These tight spreads are bizarre given the actual credit risks building in the system, and they directly contradict what Treasury investors are saying. Remember, Treasury buyers are betting on economic weakness severe enough to force continued Fed rate cuts. But corporate credit investors are accepting minimal compensation for risk, essentially assuming the economy will stay strong and defaults will stay low. Both views can’t be right. Private credit defaults hit 9.5% in July (though they’ve receded slightly since). About 11% of loans made by business development companies were generating payment-in-kind interest by the end of 2024, meaning borrowers couldn’t even make cash interest payments. Two high-profile failures (subprime auto lender Tricolor Holdings and auto parts supplier First Brands Group) exposed serious cracks in asset-backed lending and private credit markets.
The bond market is essentially saying: “We believe the economy is weak enough that the Fed will keep cutting rates, but we also believe credit risk is so low that we’ll accept almost no compensation for lending to corporations.” Both of those things can’t be true simultaneously, but the market is pricing them in anyway.
Meanwhile, across the Pacific, something is happening that could upend the entire Treasury market dynamic. The Japanese government bond market suffered a historic rout. The 10-year JGB yield pushed above 1.5%, its highest level since the 2008 financial crisis. Thirty-year yields rose to a record high above 3.2%. This is driven by Japan’s return to inflation after decades of deflation, political uncertainty following Prime Minister Shigeru Ishiba’s resignation in September, and concerns over debt exceeding 200% of GDP.
Why does this matter for US Treasuries? Japanese investors have historically been among the largest foreign holders of US government debt, holding trillions in Treasuries and European sovereign bonds. For years, they had no choice because Japanese bonds yielded near zero or even negative rates. But now, with JGB yields above 1.5% and rising, Japanese investors can earn decent returns at home without currency risk. The danger is that they start selling their overseas bond holdings (including US Treasuries) to invest domestically instead. If that happens on a large scale, it would put upward pressure on US Treasury yields just as the Fed is trying to cut rates. So far, this shift hasn’t materialized in a major way, which is why US yields have continued falling. But it’s a structural risk that’s building, and if Japanese yields keep rising, the flow reversal could become the story that dominates 2026.
Crypto’s Bounce
Even cryptocurrencies got in on the action, rallying on what can only be described as a “chaos premium.”
Bitcoin climbed above $123,000 per token in early October, up about 22% year-to-date. Ether jumped above $4,500. The rally was attributed to seasonal strength (the fourth quarter historically averages a 57.7% gain for Bitcoin since 2015, a pattern called “Uptober”), expectations of increased global liquidity as central banks cut rates, and, crucially, the government shutdown boosting Bitcoin’s appeal as a hedge against political dysfunction and a weakening dollar.
The Trump administration’s crypto-friendly stance helped. An executive order established a bitcoin reserve, and the GENIUS Act (enacted in July) provided the first federal legislation regulating stablecoins, lending legitimacy to the broader ecosystem. BlackRock’s iShares Bitcoin Trust ETF, launched earlier in 2024, attracted nearly $24 billion in net inflows through late September, making it the fastest-growing ETF of all time.
But not everything in crypto-land is working. The “crypto treasury” business model seemed compelling in theory: companies would raise money (through debt or equity) to buy Bitcoin or Ether, then hold those assets on their balance sheet. The idea was that as crypto prices rose, the company’s stock would trade at a premium to the underlying crypto value, rewarding shareholders. Some companies even pivoted their entire business model around this strategy, essentially becoming publicly traded crypto funds.
The problem? When crypto prices stall or the premium disappears, these companies find their stock trading below the value of the crypto they hold. That’s what’s happening now. ETHZilla, for instance, raised $80 million in debt collateralized by its Ether holdings specifically to buy back its own shares, because the market valued the company at less than the Ether it owned. Instead of the business model creating value, it’s destroying it, and companies are now borrowing against their crypto just to prop up their stock prices. It’s a sign that what looked like financial innovation was really just leverage in disguise, and the model breaks down when enthusiasm fades.
The Paradox Explained
So how do we make sense of all this? How can stocks, gold, crypto, and bonds all rally simultaneously while the dollar collapses, the government shuts down, economic growth depends almost entirely on AI investment, the labor market cools with small businesses shedding jobs, and inflation stays stubbornly above target?
The answer is that different assets are pricing in different scenarios, and investors are hedging all of them simultaneously.
Stocks are pricing in the AI productivity boom and continued Fed rate cuts supporting valuations. The technology is real, the capital expenditure is enormous (equivalent to 1% of US GDP), and lower rates make equities more attractive. The market is essentially thinking that the long-term transformation will deliver, and that the Fed will keep liquidity flowing.
Gold is pricing in the collapse of confidence in sovereign institutions and fiat currencies. Investors don’t trust the dollar’s long-term stability, don’t trust governments to manage their debt, and want an asset that can’t be printed or devalued by policy mistakes.
The dollar’s weakness is pricing in the consequences of political dysfunction, unsustainable fiscal policy, and the erosion of American institutional credibility. The reserve currency status is no longer a given, and capital is looking for safer harbors.
Bonds are pricing in economic weakness forcing the Fed to cut rates aggressively, but also assuming that corporate creditworthiness will somehow remain pristine despite that weakness. This is the most contradictory signal of all, and probably the least sustainable.
What you get is a market that’s simultaneously bullish and terrified, greedy and defensive, convinced of transformation and hedging against collapse. Investors are climbing what’s called a “wall of worry,” where persistent skepticism and defensive positioning paradoxically fuel continued gains. Hedge funds have been reducing equity exposure at market highs, providing the “dry powder” for further rallies as cash on the sidelines eventually gets put to work.
The Valuation Problem
Here’s the uncomfortable truth that everyone knows but nobody wants to talk about: stocks are expensive. Really expensive.
According to Bank of America, S&P 500 companies are currently the most expensive on record based on four different valuation metrics. The Magnificent Seven’s 37% weight in the index is an all-time high. Household allocation to stocks reached record levels by the end of June, while cash allocations plummeted to around 20%, the lowest in the postwar era except for a brief moment during the dot-com bubble.
History is not encouraging about what happens next. The highest quintile of stock allocation observations has historically predicted an average annualized S&P 500 return of just 5% over the subsequent 10 years, compared to 16% for the lowest quintile. High valuations eventually matter, even if they can persist for surprisingly long periods.
The bubble warnings are getting louder and coming from more credible sources. Jeff Bezos called the AI environment an “industrial bubble” where excitement causes both good and bad ideas to get funded. Goldman Sachs CEO David Solomon warned that much of the capital being deployed “will turn out to not deliver returns.” The scale of AI capital expenditure (over $300 billion this year) and its circular nature (companies buying each other’s products, using vendor financing) echo the dynamics of historical bubbles.
Yet the market keeps going up. September was supposed to be weak (it’s historically one of the worst months), but instead delivered the best September performance in 15 years. The fourth quarter is historically the strongest for stocks, averaging a 2.9% gain. Seasonal patterns are reinforcing the momentum.
What Could Go Wrong?
The list of potential catalysts for a market correction is long and getting longer.
The economy could prove weaker than expected, turning the “soft landing” narrative into a recession. The labor market is already showing cracks, with small businesses shedding jobs. If that weakness spreads to larger employers, consumer spending could collapse quickly given how concentrated it is among wealthy households.
Inflation could prove stickier than expected, forcing the Fed to reverse course on rate cuts or even consider hiking again. The European Central Bank is already projecting US inflation will surge to 3.3% in 2026 driven by tariffs, fiscal expansion, and dollar weakness. If core inflation reaccelerates, the Fed loses credibility and the “Fed put” disappears.
The AI boom could hit its limits sooner than expected. Companies are spending massive sums building infrastructure that may not generate returns for years, if ever. If investors lose patience or start demanding evidence of actual productivity gains (not just revenue growth from selling equipment to each other), the valuations could collapse quickly.
Credit markets could crack. The combination of tight spreads, rising defaults in private credit, and potential failures in shadow banking (where banks have lent $1.7 trillion to non-bank financial institutions) could trigger a credit event that spreads to broader markets.
Geopolitical shocks could escalate. The trade war could intensify further. A debt ceiling crisis could emerge when the government finally reopens. The dollar’s weakness could accelerate into a genuine crisis of confidence.
Any of these could serve as the catalyst. Or maybe none of them will, and markets will keep grinding higher on liquidity and momentum. That’s the nature of bubbles: they persist until they don’t, and the catalyst is only obvious in hindsight.
The Great Divergence
There is one potentially bullish development worth noting, though it points to something more profound than just market breadth: we may be witnessing a fundamental restructuring of global capital flows. Back in March, I wrote about a “Great Divergence” where American economic weakness would coincide with the formation of new regional economic centers developing independently of US leadership. What looked then like a theoretical concern is now showing up in market data.
The rally is broadening beyond mega-cap US tech, but more significantly, it’s shifting geographically in ways that suggest the post-World War II dominance of American markets is ending. International stocks have outperformed US equities (17% versus 13% year-to-date), which almost nobody predicted. Within Europe, formerly “peripheral” markets are crushing the “core”: Greece up 39%, Spain 32%, Italy 24%, Poland 29%, all eclipsing Germany’s 19%, France’s 7%, and the UK’s 9%. The banks in these countries, once toxic assets during the sovereign debt crisis, are now among Europe’s “brightest stars”. The IPO market is reviving in London after its worst year on record, while global M&A topped $1 trillion in Q3 alone, much of it driven by regional consolidation rather than US-led deals.
This isn’t just about sector rotation or a temporary leadership change. It reflects genuine economic divergence as US policy chaos drives capital toward more stable alternatives. Europe’s €1 trillion ReArm Europe plan and Germany’s €500 billion infrastructure fund are creating new growth drivers independent of America. The European Central Bank’s rate cuts to 2.5% are stimulating growth while the Fed fumbles between inflation and recession risks. Asian intra-regional trade now accounts for 60% of the region’s commerce, reducing reliance on Western markets. New trade blocs are forming that explicitly exclude or minimize US involvement.
The dollar’s 10% collapse this year signals eroding confidence in American institutional stability and economic leadership, beyond just Fed policy or fiscal concerns. When your closest allies (Canada, Europe) are actively seeking to reduce dependence on US markets, when trade flows are reorganizing around regional hubs, when defense spending surges in Europe specifically to compensate for unreliable American commitments, capital follows that realignment.
This is what makes the current market environment so difficult to read. You can be bullish on global growth and markets generally while being bearish on America specifically. The question isn’t whether we’re in the early stages of an AI productivity boom that will justify valuations. The question is whether that boom unfolds in a unipolar world centered on American markets and the dollar’s reserve status, or in a multipolar world where regional economic centers develop their own growth trajectories independent of US leadership.
The bond market pricing recession, the stock market pricing transformation, and gold pricing sovereign collapse might all be right simultaneously if what’s actually happening is a “Great Divergence” where American economic weakness coincides with growth and dynamism elsewhere. Markets are pricing in a reality where “the market” is no longer synonymous with “the American market.”
Where We Are
Financial markets are operating in a reality distortion field where everything is simultaneously true. Stocks soar because AI is transformative and the Fed is cutting rates. Gold soars because institutions are failing and currencies are debasing. The dollar collapses because America can’t govern itself. Bonds rally because the economy is weak but credit spreads tighten because default risk is supposedly nonexistent.
It’s a market that makes sense only if you accept that different participants are playing different games with different time horizons and different assumptions about what comes next. Day traders are chasing momentum. Long-term investors are positioning for transformation. Hedge funds are hedging everything. Central banks are diversifying away from dollars. Everyone is right and wrong simultaneously, depending on which timeframe you’re measuring.
What we know for certain is that markets have climbed very high, very fast, on a foundation of AI enthusiasm, central bank accommodation, and investor willingness to ignore mounting risks. Valuations are stretched, concentration is extreme, and the gap between market confidence and economic reality has rarely been wider.
The government shutdown will end eventually. The data will resume flowing. The Fed will make its decisions. The AI boom will either deliver or disappoint. And markets will either prove that they correctly anticipated transformation, or they’ll prove once again that euphoria and valuation eventually collide with physics.
Right now, everyone’s making their bets. Some are buying stocks, betting on continued momentum and AI-driven transformation. Others are buying gold, betting on institutional failure and currency collapse. Many are doing both, hedging a future they can’t predict.
The only thing we can say with confidence is that someone is going to be very right, and someone else is going to be very wrong. We just don’t know which is which yet.