The stock market, often hailed as a barometer of economic health and investor sentiment, is once again at the center of debate. As October 2025 unfolds, investors and analysts are wrestling with a paradox: is the market a reliable predictor of economic turns, or is it just as prone to misjudgment as the rest of us? Recent weeks have brought new volatility, shifting fortunes for major companies like Ingersoll Rand, and a growing sense of unease as liquidity dries up and the specter of a downturn looms over Wall Street.
According to A Wealth of Common Sense, the stock market has a quirky reputation: "They also say the stock market has predicted 9 of the last 5 recessions." It's a tongue-in-cheek way of saying that while the market sometimes seems almost psychic, it can just as easily be wrong. Yet, there's real evidence that the market has an uncanny knack for timing certain turning points. During bear markets, for instance, stocks tend to bottom out well before corporate earnings reach their lowest ebb. On average, the market front-runs the earnings rebound by about nine months. The 2008 and 2020 downturns serve as textbook examples—stocks began to climb even as company profits continued to sag, suggesting that investors sensed a turnaround before it showed up in the numbers.
But, as A Wealth of Common Sense notes, the market's crystal ball gets cloudy at the other end of the cycle. When bull markets end, stocks and earnings often peak together, as seen in both 2007 and 2020. There’s little advance warning; the rug can be pulled out from under investors without much notice. This makes investing an exercise in trust and timing—sometimes requiring a leap of faith that the market knows something the headlines don’t, and at other times, demanding vigilance for signs that the good times might be ending.
That leap of faith is being tested now. Michael Kramer, founder of Mott Capital, has observed that the market's balancing act is getting harder to maintain. In a recent analysis for Seeking Alpha, Kramer points to a significant reduction in market liquidity over the past several weeks. "The juggling act appears to be growing harder to maintain, and that is likely because a lot of liquidity has been sucked out of this marketplace over the past few weeks," Kramer wrote. This drying up of liquidity—essentially the ease with which assets can be bought or sold without affecting prices—can make markets more volatile and prone to sharp moves. The implication? A major storm could be brewing, with the market's recent struggles to maintain stability potentially signaling a larger downturn ahead.
Amid this backdrop of uncertainty, individual stocks are feeling the effects in real time. Take Ingersoll Rand, a company that has captured investor attention for both its resilience and its recent stumbles. According to Simply Wall St, Ingersoll Rand shares have dropped 7.3% year-to-date and nearly 17% over the past twelve months. Yet, those who held on for the long haul have enjoyed outsized gains—127.2% over five years and 84.5% over three years. That's a testament to the company's ability to rebound and adapt, particularly as it benefits from broader industrial trends like automation and energy efficiency.
Still, the recent performance tells a more nuanced story. In the past week, Ingersoll Rand's stock nudged up 2.0%, and it’s gained 3.7% over the past month. These modest rebounds reflect shifting risk perceptions among investors, especially as global economic signals remain mixed. The company has been buoyed by demand for automation and energy-saving technologies, but its valuation is a point of contention.
By traditional measures, Ingersoll Rand appears anything but a bargain. It scores just 1 out of 6 on major valuation checks, meaning only one metric suggests the stock is undervalued. A Discounted Cash Flow (DCF) analysis, which estimates the present value of future free cash flows, pegs the company's intrinsic value at $87.91 per share. With the stock trading at a 4.5% discount to this value, it’s only slightly undervalued by this measure. Free Cash Flow (FCF) for the past year was $1.30 billion, and analysts expect it to grow to about $1.90 billion by 2029.
However, the Price-to-Earnings (PE) ratio paints a different picture. Ingersoll Rand’s current PE sits at a lofty 63.8x—far above the machinery industry average of 24.5x and the peer group average of 25.5x. Even using Simply Wall St's proprietary "Fair Ratio," which adjusts for company-specific factors like growth and risk, the fair value PE is 37.2x. By this metric, the stock is trading well above what would be considered reasonable for its outlook and risk profile. The verdict: overvalued, at least by conventional standards.
But valuation is as much about perspective as it is about numbers. Simply Wall St introduces the concept of "Narratives"—a way for investors to frame their own stories about what drives a company's future, linking their views to specific financial forecasts and fair value estimates. One investor might see international growth as a reason to set a fair value at $104 per share, while another might worry about margin risks and peg it closer to $78. These narratives, updated dynamically as new information comes in, allow for a more personalized and adaptive approach to valuation—a reminder that markets are driven as much by stories and sentiment as by spreadsheets.
All of this is playing out in a market environment that feels increasingly precarious. Liquidity is drying up, volatility is rising, and the signals are mixed. As Michael Kramer cautions, the risks of loss are real, and past performance is no guarantee of future results. Every investor must weigh their own objectives and risk tolerance, perhaps more carefully now than ever.
Yet, as A Wealth of Common Sense points out, the challenges are what make investing both interesting and rewarding. "If investing in stocks were easy, you wouldn’t earn high returns over the long run." The risk premium that stocks offer over other asset classes is in part compensation for the uncertainty and difficulty involved. Whether the market is truly all-knowing or just another fallible forecaster, one thing is clear: navigating its ups and downs requires both courage and common sense.
For now, investors and analysts alike are left to watch, wait, and—perhaps most importantly—adapt. With liquidity thinning and valuations under scrutiny, the next moves in the market may well test the faith of even the most seasoned participants.
