Bill Harnisch is no permabear. His hedge fund is up 580 per cent since 2020 thanks to a honed portfolio of bets that this year alone has tripled the S&P 500’s return.
But right now the Wall Street veteran is on edge — just like the market itself, judging by the nervous trading that closed out the week.
“We look at the rally, we look at the uncertainty, I feel like I’m on another planet,” said Harnisch, whose Peconic Partners oversees $2.7 billion. “If there was a negative that comes out, boy oh boy, the market could be down big time. And it is very, very scary to me.”
The scope of the risk was brought home Friday as markets absorbed their biggest jolt yet amid a six-month run in credit, crypto and equities.
President Donald Trump’s threat of “massive tariffs” on China hammered high-valuation assets whose margins for bad news had grown thin thanks to the relentless buying of momentum-obsessed traders.
The dangers are everywhere. Trump’s tariff threats came out of nowhere Friday to wipe out stock gains for the week, boost Treasuries and dent the dollar. The ongoing US government shutdown is both obscuring the health of the economy and damaging it. And the implosion of auto-parts supplier First Brands has left the credit market reeling.
Alongside that are growing questions over whether artificial intelligence will ever justify the capital flowing its way, not to mention how the industry’s major players are funding each other. New ETFs are launching at a record clip and opening ever-more complex strategies to the retail crowd. Companies with little strategy beyond buying and holding cryptocurrency have been flourishing.
A popular theory has taken hold that gold, which topped $4,000 per ounce on Wednesday, has surged as part of a debasement trade, where investors are losing confidence in the US dollar. But there is surely a strong case that some have simply decided it’s a good time to be in the original safe-haven asset — especially since both bullion and the greenback gained this week. Gold added 3% and, despite a Friday dip, a dollar index rose 1%.
What makes Peconic’s Harnisch especially nervous is what he calls the “grand experiment” by Trump to hike tariffs against trading partners. While some of the harshest measures have been dialed back, their full impact on the economy is yet to be seen. Meanwhile Trump remains highly unpredictable — his Friday threats against China via social media rattled traders on an otherwise quiet day. Both the S&P 500 and the Nasdaq 100 suffered their worst session since April, each ending the week lower by more than 2 per cent.
“In 2008, 2009 I was afraid because of what was happening,” said Jeff Muhlenkamp, whose $250 million fund has beaten the market this year thanks to its gold miner holdings. “Today, I’m afraid because of what might happen.”
Muhlenkamp is worried about expensive stocks in particular, especially AI-linked names. He thinks it will be “difficult for future reality to match current expectations” when it comes to the trendy technology — and he’s not alone.
The International Monetary Fund this week drew a parallel between today’s market and the dot-com era, while the Bank of England warned stretched valuations were fueling the risks of a sharp correction. Billionaire investor Ray Dalio told a conference it “feels frothy to me.”
A glimpse of the risks came on Tuesday when Oracle Corp., whose stock has almost doubled since April amid the AI frenzy, slumped as much as 7 per cent on a report that profit margins in its cloud computing business were lower than estimated.
The ongoing government shutdown, in its second week, has disrupted official data, meaning even less visibility than usual into the health of the US economy. What’s more, by potentially depriving millions of federal employees their paychecks, the shutdown itself is yet another headwind to growth.
At the same time, the future pace of monetary easing remains an open question, after minutes of the Federal Reserve’s last meeting showed many policymakers remain concerned about inflation. Yields on the 10-year benchmark Treasury declined this week to around 4.05 per cent.
Of course, most investors have learned to live with anxiety through the 2020s. Thriving over the last five years has meant seeing through a litany of threats, from pandemic lockdowns to inflation to a global trade war. And every time, stocks and other risky assets seem to end up higher.
“So far earnings have delivered, and that’s been the North Star in this bull market,” said Keith Lerner, chief investment officer at Truist Advisory Services. If a bubble is forming, “you have to be careful about getting too negative too early, because the last part of the move can be very strong,” he said.
Expensive stocks and corporate bonds can get more expensive, and retail-driven euphoria has yet to dominate the smart-money set — a sign that the bull run may have more room to go. Net leverage at hedge funds has for weeks hovered near the midpoint of a five-year range, according to data compiled by Goldman Sachs Group Inc.’s prime broker.
For most of 2025, Peconic has kept its leverage below its historic average. Last month, Harnisch bet against consumer-related stocks including Sprouts Farmers Market Inc. and McDonald’s Corp., while maintaining long holdings in what he sees will perform well even if the economy craters. Boosted by high-conviction infrastructure plays like Quanta Services Inc. and Dycom Industries Inc., his fund was up 52 per cent this year through Wednesday.
“I’ve got two companies that are going to do fine in any economy and they generate a lot of free cash,” said Harnisch, who started in the financial industry at Chase Manhattan Bank in 1968. “I always prefer up markets because it is easier for everybody. But I’m not counting on an up market next year.”
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Published on October 11, 2025
