The Big Question: Is a US market correction coming?

Interview with GQG and Vulcan

FILMED IN AUGUST 2026

Is history repeating itself? Vulcan's C.T. Fitzpatrick and Brian Kersmanc from GQG argue today’s AI frenzy mirrors the late-90s dotcom bubble. While mega-caps grab the headlines, they reveal where the real value hides: in the overlooked, deeply discounted companies perceived to be at risk from AI. Plus, a look at the tug-of-war between surging private sector productivity and public sector policy blunders.

Transcript

C.T. Fitzpatrick
We believe that today’s environment is similar to the environment in the late 1990s. In the late 1990s anything that had dotcom in the name was mostly wildly overvalued, and anything that was a quote-unquote old economy stock, even if it was profitable and growing, was considered boring, and there were incredible bargains lying around and quote-unquote, old economy stocks, while the aggregate market was driven by wildly overvalued internet stocks. A similar dynamic is playing out today with AI stocks, whether it's the recent SpaceX IPO or the valuations that are being rumoured for Open AI and Anthropic.

On the other end of the spectrum, some of the highest quality companies in the world that are purported to be threatened by AI are being given away at some of the deepest discounts we've seen. So there's a big dichotomy in the market. There are certain parts that are really, really discounted, and there are parts that are really overvalued. And at the aggregate level, I think the fairest thing you can say, or the kindest thing you can say, is that the market is at fair value and it is arguably overvalued.

Brian Kersmanc
Currently in the market we're seeing a couple of areas where things are a little bit extended but I wouldn't say the market overall is exorbitantly pricey. So within there, something that we've done internally at GQG is reduce things like staples and utilities, where we originally bought a lot of those names in sort of the 15 multiple range to the mid-teens multiple, and they've extended into the 20s.

And interestingly, on the other side of things, a lot of those tech multiples that had been extended, especially from The Mag (Magnificent) 7 types of names, those have come in pretty appreciably and gotten a lot more interesting and a lot more favourable from a risk forward perspective against an improving earnings outlook. So we actually see more opportunity on that side.

C.T. Fitzpatrick
We believe that there's a tug of war between the private sector and the public sector. On the private sector side, we have a surge in productivity, we have record earnings, earnings are growing very nicely, we're ending the third quarter earnings season, I can tell you with confidence that our companies are doing extremely well and we believe that their values are growing very nicely. So we really don't see anything on the private sector that would cause us to have concerns.

On the other hand, the public sector is making a lot of policy blunders, whether it's wars that are leading to higher energy prices, whether it's inflation that is difficult to get under control, rising interest rates, real estate, unaffordability stresses on consumers. These are all policy mistakes and so far the private sector is doing a great job of overcoming these headwinds. But should the headwinds turn into a hurricane with a serious policy blunder that could cause the rally to end.

Brian Kersmanc
What's interesting is we actually see a lot of things within the market accelerating at this point in time. The investment spending that is coming through on the industrial-defence complex, technology, utilities - we're actually seeing more growth filtering through the economy in a lot more areas. So we're actually seeing earnings accelerate and growth actually picking up speed.

That being said, obviously the risk with higher energy prices that filters through to costs in a lot of these businesses, higher inflation, possibly higher interest rates that could derail some of the growth that we're seeing and something we're keeping an eye on and have investments on the other side of the portfolio to account for that as well.

C.T. Fitzpatrick
We believe that there are a lot of opportunities in companies that are generally described as SMID that is small to mid-cap. I would describe them as smaller large-cap companies. There's so much attention being placed on anything that's AI related, and those companies tend to be the mega-caps that are driving the indices. Beneath that there are a number of number of wonderful businesses that are very attractively valued that are just simply being ignored because they're just not in the spotlight. We're finding a lot of opportunity there, and I think there's a lot of opportunity for people like ourselves and yourselves who are invested in these companies, should the mega caps decline.

Brian Kersmanc
We've actually seen a little bit of the stumbles from the mega-size companies, given that they have underperformed the broader market since about October of last year. And what you've seen in its place is a lot of the other earnings from these other businesses really picking up and offsetting some of the weakness that you've seen out of those companies. Now, with that being said, the valuations have come in a lot for those Mag 7 types of businesses, at least in our view. We see that the fundamentals are getting more attractive for those businesses. You are seeing that their margins or their pricing is improving and their products and services and we do see scope for better performance for those businesses going forward, which should, in our opinion, help lift the entire market along with the strength in earnings in those other businesses we mentioned before.

C.T. Fitzpatrick
These risks are definitely impacting how we’re positioning the portfolio. Basically, we are finding a lot of opportunities in companies that are perceived to be at risk from AI. Some companies will be disrupted by AI, but some companies not only will not be disrupted, they'll actually benefit from it. A lot of these companies are smaller cap companies as compared to the mega caps. you might call them SMID cap SMIDS, small to mid cap companies. The common theme, if you will, is that there are many, many wonderful businesses, some of the best businesses in the world that are trading at the most discounted valuations they’ve traded at in decades because they are perceived to be victims of AI. Some will benefit tremendously, some will be disrupted. We believe we have differentiated between the two, and we're finding great opportunity in that part of the market.

Brian Kersmanc
We actually believe that we've underestimated the growth to the upside from here. There does seem to be more growth coming through from the utility, industrial, even the technology spaces with further investment and we have allocated more of our portfolio to those industrial names and also the financials as well and some of those technology names as earnings really started to accelerate on that side. Now there is still the looming risk of higher energy prices and higher energy cost filtering through a lot of different areas, pushing inflation higher and we do still have an area of the portfolio that we think is very attractive on that side of things. Even at lower energy prices, they will compound and continue to sustain given the environment that we see. However, it will provide a nice offset to other areas of weakness if that energy pricing does sustain a lot higher from here.