Joe Tigay Trick or Treat: Deciphering Market Scares from Real Dangers
By Joe Tigay, Portfolio Manager
Rational Equity Armor Fund
Halloween has come and gone, and what a joy it is to watch the magic unfold through the eyes of three kids—ages 8, 6, and 4. These are the incredible years when the spooky decorations genuinely thrill them, when a simple costume transforms them into superheroes or princesses, and when the promise of candy makes every door they knock on an adventure. As a dad, there’s something special about being part of that wonder, creating just the right amount of scare mixed with safety, knowing that at the end of the night, everyone goes home happy with a pillowcase full of treats.
But here’s what I’ve noticed: the news has a way of doing the same thing to us adults that Halloween does to kids—except we don’t always realize we’re being spooked. We gravitate toward the shocking, the scary, the sensational. Stock market news is no different. Every correction is framed as a crash, every pullback as a crisis, every bit of volatility as potential catastrophe.
As a former VIX and SPX options market maker and now portfolio manager of the Rational Equity Armor Fund, I’ve spent my career in the theater of fear. The VIX—Wall Street’s fear gauge—literally monetizes anxiety. I’ve seen firsthand how markets react to perceived threats versus actual dangers, and the distinction matters enormously for long-term investors.
The Real Lesson of Halloween
Maybe the real lesson of Halloween isn’t about embracing fear—it’s about learning to decipher what’s actually dangerous from what’s just designed to spook you. It’s the difference between a plastic skeleton hanging from a tree (startling but harmless) and an actual hazard in the dark.
In markets, this distinction is everything. Is this correction a “trick”—temporary volatility that’s actually setting up a buying opportunity (a treat)? Or is it a “trick” that signals genuine danger—like a liquidity-driven rally running out of candy?
When the Market Runs Out of Candy
That candy metaphor might be more apt than it first appears. Think about what makes Halloween work: there has to be enough candy to go around. Kids know that if they get to the party late, the good stuff might be gone. The same is true in markets.
The stock market usually goes up over time—that’s the historical reality. But these gains aren’t magic; they’re fueled by liquidity, earnings growth, and investor confidence. When any of those elements starts to run dry, we need to pay attention.
Right now, we’re watching several critical dynamics unfold:
The AI Acceleration: We’re seeing extraordinary momentum in AI-centric companies, with infrastructure spending surging and platforms like Palantir’s AIP driving explosive growth. The capital expenditure boom in AI infrastructure is real and accelerating—this is genuine technological transformation.
The Valuation Question: But here’s where we need our trick-or-treat radar active. When we hear about OpenAI potentially targeting a $1 trillion valuation for a future IPO, or when companies with high potential but limited scale trade at extraordinary multiples, we’re pricing in years of future growth today. This doesn’t mean it’s wrong—it means the margin for disappointment is razor-thin.
The Economic Foundation: Perhaps most critically, we’re seeing a divergence. Consumer spending remains resilient—Amazon’s Q3 North America sales grew 11% year-over-year. But simultaneously, we’re seeing high-profile job cuts across major tech companies and economic stress building in the lower half of the income distribution.
The Liquidity-Driven Rally
This is where the “running out of candy” allegory becomes particularly relevant. A liquidity-driven rally is wonderful while it lasts—every house on the block is handing out full-size candy bars. But what happens when the punch bowl gets pulled? When Berkshire Hathaway is sitting on a record $381.7 billion in cash, Warren Buffett is essentially saying: “I’m keeping my candy for later when everyone else has run out.”
As someone who’s spent years managing volatility and protecting portfolios, I know that being prepared doesn’t mean being perpetually scared. My kids weren’t actually in danger on Halloween—but I still held their hands crossing the street. That’s the mindset: enjoy the treat, but stay alert to real risks.
The K-Shaped Reality
Here’s the critical question we need to ask: can the AI rally be sustainable if its benefits don’t eventually reach the broader economy? If AI-driven efficiency only results in permanent job losses without creating new opportunities, we risk a demand collapse that would undercut the entire rally. The economy is shaped like a “K”—the top is doing great, but the bottom is under increasing stress.
For this rally to have legs beyond 2025, we need to see AI benefits translate into broad-based economic improvement. Otherwise, we’re building a sandcastle at high tide.
Staying on Our Toes
The stock market’s long-term trajectory is upward, but that doesn’t mean we can sleepwalk through the present. We need to be on our toes, constantly evaluating whether the scares we’re seeing are theatrical or substantive.
At the Rational Equity Armor Fund, our approach is built around this very principle: participate in market upside while maintaining protection against the downside. It’s not about avoiding risk entirely—it’s about distinguishing between the plastic skeletons and the real hazards.
As we head into the final months of 2025, enjoy the treats the market is offering. The AI transformation is real, innovation is accelerating, and opportunities abound. But keep your eyes open. Know when you’re being spooked by headlines versus when genuine risks are emerging. And remember: the best candy comes to those who know which houses to visit—and which ones to skip.
Joe Tigay is the Portfolio Manager of the Rational Equity Armor Fund and former VIX and SPX options market maker. Learn more about Joe’s background and approach at Equity Armor Investments.
