The Bull Thread

15 Things All Investors Need To Know


“It is about time in the market, not timing the market.” Old investment saying

As of now, the S&P 500 has avoided officially entering a bear market (down 20% from the February 19th closing high), but who knows, by the time you read this we might be there. I’ll take a different approach today and look at some big picture things that all investors need to know.

Stocks Can Go Up on Bad News
A lot of bad things have happened since 1900, yet the Dow has continued to move back to new highs after every single one of them. The truth is a lot of good things have happened throughout history too, but we usually don’t hear so much about those. As bad as the reaction has been to “Liberation Day” we don’t think this will be any different than the other bouts of bad news, as some day in the future new highs will very likely happen.



Bear Markets Happen, Even Outside of Recessions
The S&P 500 is down more than 17% from the February 19th peak, so we are one bad day away from moving into a new bear market. Does this mean a recession is right around the corner? As of now, we think we can avoid a recession this year, but the odds have unquestionably jumped the past few weeks. Still, looking at the past 18 bear (or near bear) markets we find that nine took place in a recession and nine didn’t, with the average bear down nearly 30% over those 18 times. The times a recession was avoided stocks fell about 24%, compared with bears in a recession down nearly 35% (but keep in mind that doesn’t include the times a recession didn’t see a bear market, which happens too). If we aren’t falling into a recession then the odds favor that this current weakness will be fairly contained near here.



Big Moves Are Normal
Looking at annual returns, when the S&P is positive it is up 19.0% on average, but when it is lower it averages down nearly 14% for the year. Those are some big moves. Think about that again. When stocks finish higher on the year they are up nearly 20% on average, likely way more than most investors expected I suspect. The flipside is when things are in the red a decline of nearly 14% is perfectly normal, so larger down years might not happen as often but they indeed can happen.



Average Isn’t So Average
Along the same lines as above, the average year for the S&P 500 gains 9.5% on average, but a gain around that average is extremely rare. In fact, only four times going back 75 years have stocks finished 8-10%. Just know that larger moves are quite common, whether those moves are up or down.



Corrections Are Normal
The current 17.6% correction sure feels like a lot, especially given we didn’t have a 10% correction all of last year, but it turns out this is more common than you think. Since 1980, we found the average peak-to-trough correction per year is 14.0%. Yes, this year has a long way to go and things could get worse, but don’t forget that with more time to go things could also get better.



Another Bear Now Would Be a Record
By the time you read this, we very well could be in another bear market, which would be the third bear market over the past five years. That would be the fasted we’ve ever seen three bear markets start, topping the just under seven years we saw for three bear markets starting from February 1966 to January 1973.



Volatility Is the Toll We Pay To Invest
If you’re read our blogs over the past few years, then this one shouldn’t be a big surprise. Yes, this year hasn’t been fun, but we like to say that volatility is the toll we pay to invest. Every single year will have some bad days and some scary headlines. In fact, on average you’ll see a 10% correction once a year, with a bear market every three and a half years. If you want the longer-term gains that stocks historically provide, you have to be willing to stomach some of the volatility and that is the toll we pay as investors.



February Peaks Are Rare
Can stocks really get back to new highs before this year is over? We get it, that would take a heck of a move, but we wouldn’t say the odds are as slim as many think. Should we get some good news on the trade front and the economy remans resilient it could happen. Then toss in the fact that only twice going back 75 has stock peaked in February and maybe we could see a new high later this year.



There Were Warning Signs
We noted this at the time, but the Eagles winning the Super Bowl was probably a very bad sign, as when the City of Brotherly Love wins a Super Bowl or World Series very bad things happen. Sure enough, ever since the Eagles won in February thing have been pretty bad. Full disclosure, don’t invest based on the Super Bowl, but boy oh boy this is interesting!



Rough Start for Trump 2.0
Speaking of bad returns, things haven’t done nearly as well in President Trump’s second term, or as I’ll call it Trump 2.0. The S&P 500 is down 15.6% since he took office and looking at the past 33 terms this is the fifth worst start out of all of them. Yes, there is plenty of time left for this to improve, but still, this isn’t a good start.



VIX 50 Is a Good Sign
The VIX soared to above 60 yesterday morning, hitting levels that historically have marked major bottoms for stocks. We’ll keep this simple, but when the VIX hits 50 for the first time in a month it has probably been preceded by poor performance driven by panic, likely suggesting better times are coming. In fact, the S&P 500 has gained more than 20% on average a year later after the VIX spikes above 50.



Adding to the pure washout levels of sentiment, the CNN Fear & Greed Index hit a level of three yesterday morning, about as low as it can go, suggesting many of the sellers have likely already sold.



Valuations Matter, but Maybe Not as Much as You Think
We absolutely pay attention to valuations and the high valuations on technology is one of the reasons we didn’t come into 2025 overweight this group like so many others. Still, you might be surprised to find out there is virtually no correlation with P/E multiples and future stock performance over short time periods. We found S&P 500 trailing P/E multiples and one-year future returns have a correlation coefficient of virtually 0, suggesting there is no correlation between the two.



Time in the Market
Our advantage as investors is time. Let the hedge funds and algos fight over the day-to-day volatility, we can take a longer-term approach to things. Doing this shows that it isn’t about timing the market, but about time in the market. Yes, you’ve likely seen portfolio losses the past seven weeks, but if you have a long enough time horizon and you’re invested in line with your risk tolerance you were prepared to weather the storm for the potential of longer-term gains. As we show below, over the long run you’ll likely make money investing and knowing this is the big advantage you have over the crowd.



Missing the Best 10 Days
Along the lines of above, if you panic and sell at the lows then you’ll miss out on the rebound. We’ve done the work and we’ve found that the worst days of the year happen right around the best days of the year. So if you can’t take the bad days we’ve seen lately and sell, you’ll inevitably miss the upcoming best days on the rebound, which is very difficult to time. Here we show what happens if you miss the 10 best days of the year and the bottom line is since 2000 the average year has gained 9.8% but that drops to -12.5% if you miss the best 10 days each year.



Double Digit Down Years Are Rare
The S&P 500 is down 13.9% on the year and no one is very happy about that, but does that mean the year will close down from here? As of now, we think the odds greatly favor stocks to finish the year higher than where they are now, likely a good deal higher with any good news. In fact, for the year to lose 10% it usually takes some really bad news. As you can see in the table below, double digit yearly declines nearly always have a major catalyst and we’ve only seen four of them since the turn of the century. Yes, tariffs could be the driver for this to happen this year, but time will have to tell there. For now, we’d side with a double-digit decline in 2025 likely being a low probability event.



There’s a lot happening out there and we know you can get your research from many places, but we are honored you are looking to us for guidance. We won’t always be right, we won’t always be wrong, but we will always be honest, while sharing actionable and easy to digest data. Thanks for reading and here’s to manifesting some green out there soon!

 

Bounce Fails After 2-Day 10% Rout Wait for Fatter Pitch

Good news. Six months from now this tariff tantrum should be behind us. But the history of these crashes is not the kind of company we’d like to keep. All previous instances occurred during bear markets, recessions and/or war.

The first three occurred during The Great Depression. Two revolved around WWII, one at the outset and the other during the aftermath. One was the Crash of Black Monday on October 19, 1987. Two came two weeks apart in November 2008 during The Great Financial Crisis and the last one was in March 2020 at the beginning of Covid.

This too shall pass. But it’s not likely over yet. We are waiting on let’s make a deal with China, rate cuts from the Fed, volatility to dry up and the selling pressure to be exhausted. If you could put away your phone and turn of the TV for six months, it probably wouldn’t be a horrible idea. The time to buy over the next several weeks and months will present itself. For now, sit tight and keep your powder dry, the bear has reared its head and recession is quite possible.

 

3 Unusual Things About This Selloff


(Updated as of 3pm CST 4/9/2025) We had the largest tariffs in over 100 years on for about 12 hours, before President Trump paused them for 90 days for countries that did not retaliate. That’s a relief, though we could be right back here in 90 days. But hopefully this gives the White House time to negotiate with everyone and ease the temperature a bit.



Keep in mind that several additional tariffs have already been imposed, including 20% tariffs on Chinese imported goods. 25% tariffs on steel and aluminum, 25% on automobiles, 25% tariffs on non-USMCA compliant goods from Canada and Mexico (and a lot of goods are non-compliant, because costs of compliance were high), and 10% tariffs on all other imports.

These are already having an impact on importers in the US, who are the ones who have to pay the taxes (tariffs!), as opposed to the exporting firm.

Here’s a hypothetical example. A small business owner in the US ordered aluminum parts from China, worth $3,380, and they crossed the border on March 31st. The shipper, DHL, requires $2,483 for import duties (tariffs) to be paid, or they’ll send the shipment back to China. The tariffs amount to a whopping 73% of the cost of goods, and include the 25% tariffs on China from Trump’s first trade war, 25% steel/aluminum tariffs, and 20% tariffs imposed on Chinese goods in March. Needless to say, it’s not easy on a business owner when a $3,380 order comes with an extra $2,483 tax bill.

But it could be worse. Luckily for this small business owner, this shipment came before the additional 84% tariffs on China’s goods go into effect on April 9th. though that’s likely to be small solace since they likely will have to order more parts for the business to continue as before. Or maybe it won’t if they decide they cannot be profitable anymore.

As you can see, its businesses in America who pay the tariffs (not China) and they’re going to have to decide whether to eat the higher cost from their own profit margins, or to pass it on to their customers. And for some owners that will mean a decision about whether they can stay in business.

This is going to be a problem for businesses across America. But when I mentioned that we have a big problem in the title, this is not what I meant (which is not to minimize the tariff problem). There’s something hugely problematic happening in markets, and it’s not even the fact that equities have crashed over the last four days. Instead, it’s the US Treasury bond market, typically the most liquid and deepest market in the world, that is throwing a fit.

Meltdown in The Bond Market
Treasury Secretary Scott Bessent has argued that even if the tariffs create a short-term economic slowdown and volatility in the stock market (check), that wouldn’t be too concerning since only the top 50% of households by income own stocks (note that this isn’t quite true, with lower income households owning at anywhere from $2 – $3 trillion in stocks, which is not nothing). His main goal is to get long-term interest rates to fall, since that would help lower-income households who tend to have more debt service costs. (Note that an economic slowdown, or recession wouldn’t be great for this group either because that could mean they lose their jobs.)

There’s also been an argument that this whole exercise of imposing massive tariffs is to reduce interest costs for the federal government, which has to refinance $9 trillion of debt next year. In reality, the federal government always has a lot of debt to refinance because it issues a lot of short-term debt (which all of us happily purchase, including in money market accounts). However, the interest rate on that depends heavily on short-term policy rates determined by the Federal Reserve (Fed). And if you want the Fed to cut rates, policy that sends inflation the wrong way would not be the way to do it.

In any case, we may have a big problem on our hands. US Treasury interest rates are surging. The 10-year yield has surged to 4.45%, which is the highest level we’ve seen over the past month. On April 1st, the day before Liberation Day, the 10-year yield was at 4.17%. It fell as low as 3.92% as stocks plunged, before surging more than 0.5%-points over the last three days. That’s a massive move.



Is This China’s “Revenge”?
Yields rose sharply on Tuesday (April 8th) after a weak Treasury auction for $58 billion of short-term 3-year debt. There are rumors that this was China’s “revenge,” i.e. they’re selling US Treasuries in retaliation for tariffs. Let me be clear: this is just pure speculation without even a hint of evidence.

For one thing China does not own a lot of US Treasury debt anymore, just about $760 billion. If they were selling US debt, they would be selling USD and buying yuan, in which case we’d see major appreciation in the yuan. That’s not happening right now — in fact, the opposite. The PBOC (China’s central bank) set the yuan reference rate just above 7.2066, slightly weaker than the prior day’s level of 7.2038, and the fifth straight day of fixing the yuan lower. The yuan is now close to the lowest level in a decade and a half, with the PBOC carefully managing a gradual decline in their currency. Of course, this has the added effect of shielding the economy from tariffs, since it makes Chinese goods even cheaper (though they have a long way to go to overcome a 104% tariff).



A Dash for Cash
Instead, it’s likely due to portfolio managers at hedge funds liquidating positions. For one thing, cash is paying 4.3%, and so with the prospect of inflation (from tariffs), why would you want to take extra risk on long-term bonds? Inflation expectations over the next year, as measured by inflation swaps, have surged to almost 3.6%, which is the highest since mid-2022.



Several hedge fund strategies are also being unwound. There’s something called the “basis trade,” where funds use a ton of margin to take advantage of tiny difference in prices for Treasuries and associated futures. These are very small price differences and you need a huge amount of margin (about 50x) to make real money on it. Hedge funds were expecting Bessent to cut banking regulation this year, and one rule involved something called the “standard leverage ratio,” which makes it more expensive for banks to hold Treasury debt. These funds expected banks to start buying debt again and bet that Treasuries would outperform interest rate swaps (derivatives that are bets on yields). But because of tariffs, and rising inflation expectations, yields have risen, and banks are selling Treasuries instead. And so, interest rates swaps have outperformed Treasuries, forcing funds to delever (reduce margin) and unwind their positions. Oops.

The Fed’s Conundrum
A big part of what’s happening in bond land is the conundrum facing the Fed. Growth expectations are falling, best highlighted by crashing energy prices. WTI oil prices have plunged 20% over the last week to almost $56/barrel. At that price, we’re not going to get new drilling activity in the US, as oil producers need prices near $65/barrel to profitably dig new wells.



Lower growth expectations, or even a recession, should ordinarily lead one to expect the Fed to cut rates (and markets expect five cuts now in 2025). The problem is 1-year inflation expectations, as I noted above, have surged to 3.6%. That makes it very hard for the Fed to cut rates, even if inflation is “transitory.” In fact, Chicago Fed President, Austan Goolsbee, normally the most dovish member of the FOMC, just expressed concerns that inflation could be persistently high for a while — that’s not good.

The market coming to terms with the possibility that the Fed may not cut rates as much as they expect, or at all, could be the next shoe to drop. Of course, if there is a seizure in the Treasury market, like in March 2020 when Treasuries sold off rapidly as funds deleveraged, the Fed may step in to provide liquidity. But that’s different from cutting rates and supporting the economy overall with lower rates, unless their actions are taken as “forward guidance” for upcoming rate cuts. Color me skeptical on that. Now, if the unemployment surges, say to 4.6%, we could see a rate cut, but that would mean the economy is in real trouble. In any case, the Fed is not going to cut rates until they see poor data, which means they’re going to be behind the curve.

This is the problem when you have an inflation constraint — something that didn’t exist for most of the last 30 years. The big exception was in 2022, but the Fed was quite willing to throw the economy under a bus back then to get control of inflation, with Powell and co saying a recession is likely and projecting much higher unemployment rates.

A Weaker Dollar Creates Another Problem
One way to mitigate some of the inflationary impact of tariffs was a stronger dollar, as the current White House Chair of the Council of Economic Advisors, Stephen Miran, has suggested. However, given the magnitude of the tariffs, this was always going to have a minimal effect.

The problem is that the dollar has been going in the opposite direction. It’s been easing this year, with the dollar index down 5.5% year to date. It’s also pulled back almost 2% since April 1, the day prior to Liberation Day. That’s not good, as it makes imports even more expensive.



When people ask me what’s the difference between an emerging market (EM) and developed market, I tell them that my market-oriented perspective is that a country is an EM if the following happens during a crisis:

• Stocks fall
• Sovereign government bond yields rise
• Currency falls

We now have this exact environment in the US. Even in March 2020, as equities crashed, and Treasury yields rose briefly (before the Fed stepped in), the dollar was appreciating. That’s not the case now.

The only way to explain these moves is that investors, and the rest of the world, has lost confidence in America and is no longer flocking to the traditionally perceived safety of the US dollar and Treasuries. These now have a significantly higher risk premium and may no longer be “exceptional.” This is not to say markets won’t recover — they could (but we’re going to need to see a reversal from the White House for that). But going forward the usual expected correlations between different parts of an investment portfolio — US stocks, international stocks, bonds, cash, and even commodities — may need to be adjusted quite significantly.

 

Tariff Pause Rebound Could Persist During Historically Bullish Good Friday Week

Good Friday is the one NYSE holiday with a clear positive bias before and negativity the day after (Stock Trader’s Almanac 2025, page 102). DJIA, S&P 500, NASDAQ, and Russell 2000 all have solid average gains on the three days and full week (shortened) before Good Friday. NASDAQ has been notably strong, up 21 of the last 24 days before Good Friday with an average gain of 0.75%. NASDAQ declines occurred in 2017 (–0.53%), 2022 (–2.14%), and 2024 (–.12%).

However, the day after Easter has a weak longer-term post-holiday record. The S&P 500 was down 16 of 20 years from 1984-2003 on the day after Easter while it has modestly improved recently, up 13 of the last 21 years. Post-Easter weakness has been generally short-lived with average gains 2- and 3-days after.

 

Easter Seasonality
Mon, Apr 14, 2025

With all the craziness of the past few weeks, many investors could use a day off to catch their breath, and that's what we'll get later this week. Equity markets will be closed on Friday in observance of Good Friday. So far during the season of Lent—the more than 40-day period between Ash Wednesday and Easter—markets have appeared to have given up buying. Historically, the bulk of this period (the last close before Ash Wednesday through the last close before Good Friday) has had a positive seasonal bias with an average gain of 1.83% and positive performance 67% of the time. While there are still a few days left, the 5.68% decline this year puts the S&P on pace for the fourth worst performance during Lent of all years since the start of the five-day trading week in 1953. The only years with larger declines were a 10.86% drop in 1980, a 10.82% decline in 2020, and a 5.92% decline in 2001. Again, there are still a few days left, and the elevated volatility recently could change that ranking, but we'd also note in 1994 there was a similar-sized drop to now at 5.66%.



In the chart below, we show the average daily change in the S&P 500 for each day during the holiday-shortened week in addition to Easter Monday. We also include a look at full-week performance for the week and the following week. As shown, the week of Easter has typically held a positive tone with the largest and most consistent gains coming right before the long weekend on Thursday. Monday and Tuesday, on the other hand, have seen the S&P 500 fall more often than not. Regardless, for the full span of "Holy Week", the S&P 500 has averaged a 0.66% gain with positive returns just under two-thirds of the time. After coming back from the holiday, stocks haven't tended to continue rallying. Easter Monday has averaged a decline of 16 bps with positive performance less than half of the time. Once again though, the full week after Easter has seen the S&P 500 generally trade higher.

 

DJIA Up 34 of Last 43 April Monthly Expiration Weeks

April’s monthly option expiration is generally bullish across the board with respectable gains on the last day of the week, the entire week, and the week after. Since 1982, DJIA has advanced 28 times in 43 years on monthly expiration day with an average gain of 0.23%. S&P 500 has a similar record with 27 advances and an average advance of 0.15% on monthly expiration day. Monthly expiration day was trending solidly bullish after four or five declines from 2014 to 2018 but took a hit in 2022’s bear market and again in 2024.

Monthly expiration week also has a bullish track record over the past 43 years. Average weekly gains are +1.08% for DJIA, +0.83% for S&P 500, and +0.84% from NASDAQ. The bullish bias of April monthly expiration also persists during the week after although average gains have not been as strong with selling pressure rising recently (since 2018).

 

Bull Market? Bear Market? Or Something in the Middle?


“The wise make great use of adversity, the foolish whine about it.” Dee Hock, Founder of Visa

The wild market action continues, but at least stocks have bounced and in some big ways the past week or so. Back on Monday, April 7, the S&P 500 opened up down more than 2%, yet stocks finished the week up more than 5% for the best week since November 2023. Did you know the last time we saw a week start off that poorly, yet finish up more than 5% was May 1970, which kicked off a 56% rally? Yes, sample size of one, but I like to share potentially good news and that is good news if you ask me. Here are some other bits of good news I’ve seen lately.

Bounce
Stocks were flirting with a bear market until President Trump put a pause on all reciprocal tariffs (excluding China) for 90 days on Wednesday, April 9. The S&P 500 responded by gaining 9.5% in one day, the third best single day since World War II. Like a beach ball under the water, once it gets some momentum, it can really start moving. In fact, we found 23 other times (since 1950) the S&P 500 gained more than 5% in one day and the future returns were quite impressive longer term, with stocks up a year later more than 91% of the time and up nearly 27% on average.



Just How Rare Was Wednesday?
It wasn’t just that last Wednesday saw huge gains. Nearly all the volume on the NYSE was for stocks moving higher as well (something we call a buying thrust). In fact, advancing volume was 98.6% of the total volume, the most in history (using reliable data back to 1980). We found six other times that had extreme levels and the S&P 500 was higher 3-, 6-, and 12-months later every single time. Check out some of those dates. August 1982 and March 2009 really stand out as some historic buying opportunities. This could be another clue that the sellers scared by currently known risks have exhausted themselves and higher prices over the intermediate term could be possible.



Another Near Bear Market
If you watched TV at all early last week, you likely heard how stocks were very close to a new bear market, meaning more than 20% off the February 19 peak. Intraday it did hit down 20%, but on a closing basis it only got to 18.9%, close but not quite there. Yet, for many investors heavy in technology, it sure likely felt like a bear market, with many of those names down much more than 20%. Here’s the thing — we’ve seen many near bear markets lately from a big picture perspective, including 1990, 1998, 2011, and 2018. All of those years had scary headlines and worries, yet managed to barely miss officially going into a bear market. We don’t know if this time will be added to this list, or if more trouble is around the corner and we are delaying the inevitable, but with the big rally on Wednesday and some historic levels of extreme sentiment, it is possible.



Bad Things Have Happened Before
If you’ve invested in equities the past seven weeks it hasn’t been very fun; we can likely agree there. At the same time, after more than a 70% rally from the October 2022 lows and not even a 10% correction last year, we were on record that a 10-15% correction was likely this year. No, we didn’t expect a near bear market with historic volatility, but we also (like many) didn’t expect tariffs to be as high and wide ranging as they have been either.

Here’s the thing, and it is important to remember. Bad times have happened before and they’ll happen again. The other thing to remember is stocks have eventually gotten past the bad news and weak market returns every time in the past and we don’t think this time will be any different.



This hasn’t been fun for investors, but volatility is the toll we pay to invest.

 

Bear Market Rally? Near-Term Bounce?

Uncertainty still hangs over the market, economy & global trade. But based upon the retreat in CBOE Volatility index (VIX) from around 60 back down to around 30, our waterfall decline research, and the Republican post-election year seasonal trend, the bottom could be in, at least in the short term.

S&P 500 Post-Election Year Seasonal patterns all show some degree and duration of strength from around now through sometime between early June to early August, before the next bout of seasonal weakness could arrive at the same time the 90-day tariff pause ends.

The market may be giving the Trump administration the benefit of the doubt on tariffs for now, but time is running out for them to start showing progress and announce new meaningful trade deals.

 

Worries And Uncertainty Grow, But There Are Positives


“Everybody in the world is a long-term investor until the market goes down.” – Peter Lynch, famed manager of the Fidelity Magellan Fund

After the S&P 500 gained nearly 6% two weeks ago, there was some well-deserved giveback last week and again on Monday. Sparking the weakness last week was a big down day on Wednesday after hawkish comments from Jerome Powell and then Monday saw a large drop as President Trump fanned worries that he might try to force Powell out of the Fed. Whether he can he do it is another question for another day, but markets didn’t like him calling Powell ‘a major loser,” as it only added more uncertainty.

Some Good News
We are still of the opinion that stocks are trying to carve out a potential low, but risks are clearly still high over the trade war and the Federal Reserve (Fed) is in a tough spot. Speaking of the Fed in a tough spot, be sure to read The Fed Is Caught In A Between A Rock And A Hard and Lonely Place by Sonu Varghese, VP Global Macro Strategy.

One potential positive is market breadth has held up quite well in the face of the near-bear market. The S&P 500’s advance/decline line is a cumulative tally of how many stocks advance and decline each day and it can give clues of how things are really doing under the surface. As the chart below shows, the S&P 500’s advance/decline line has held up well above the early 2025 lows, whereas the S&P 500 price has broken beneath those levels, suggesting there is potential strength under the surface. Additionally, the S&P 500 found support just beneath the 5,000 level, which was also the last low in April 2024.



Some More Good News
I continue to be impressed by how well credit markets have hung in there given all the market volatility and worry over the economy. I learned a long time ago that credit investors are the smartest people in the room and the good news is we simply aren’t seeing major cracks in credit, yet. This could always change, and in a hurry actually, but even though the S&P 500 is down about 12% for the year, high yield corporate bonds are down less than 2%, much better than I’d expect if the monster under the bed was real.

Spreads on BBB corporate bonds have widened the past month, but still aren’t as blown out as they were back in 2022 for instance.



Historically, the Best and Worst Days Happen Near Each Other
As we’ve noted recently, the best and the worst days tend to happen very close to each other. In fact, on Thursday, April 3 and Friday, April 4, the S&P 500 fell more than 10% for one of the worst two-day returns in history. Many investors couldn’t take it and after that historic decline decided to get out of stocks early the next week. Sure enough, a historic jump was right around the corner, with now one of the best two-day rallies ever. As the chart below shows, the best two-day rallies and declines tend to happen near each other, with the worst days usually happening first, often followed by a huge rebound. This is another reminder that volatility is the price we pay to invest, and if you want to experience the big rallies, you will have to withstand the selloffs.



Sentiment Is Extreme
In many cases, sentiment is at extremely low levels, which could be positive from a contrarian point of view. Remember, once everyone is bearish the sellers may very well have exhausted themselves and a major low can form.

The recently released Bank of America Global Fund Manager Survey showed a record number of participants who intend to cut US exposure, as shown in the chart below. The survey also showed the largest two-month jump in cash since April 2020 and the 4th highest recession expectations ever. Given this survey looks at managers who manage actual portfolios, this is a very solid potential contrarian indicator.



Additionally, the National Association of Active Investment Managers (NAAIM) Exposure Index came in at its lowest level in 17 months, suggesting RIAs are finally tossing in the towel as well. Lastly, The Economist last October had a cover with $100 bills shooting into outer space with the title “The Envy of the World,” as everyone was bullish the US back then. Well, last week they had a cover discussing what could happen should there be a US dollar crisis. Just as sentiment was over the top on the US in late 2024, increasing the odds of potential trouble, now we are seeing the exact opposite backdrop.



Meanwhile, consumers are making negative comments unlike anytime in history, according to the University of Michigan’s Sentiment Survey.



Lastly, Europeans have quickly soured on the US, as those looking to visit us as tourists has outright tanked.



you were looking to buy expectations, then you’d want to buy when things were on sale and my friends, we are seeing that right now.

In conclusion, the fears and worries are real, but there are some positives out there as well. Stick with your plan and when in doubt, diversify it out. One of the worst things you could do right now is move everything out of equities and into cash or something super hot like gold. As great as gold has done (and it has been a tremendous non-correlated asset in 2025), it is historically stretched and chasing the shiny object (get it?) isn’t the way to reach long-term investment goals. Rebalancing, staying diversified, and following your investment plan are important investment concepts to focus on in times like this.

Thank you for reading and following what our team is saying. We know you have a lot of places to get investment advice and we are honored you chose us.