March Madness

A great litmus test to the sentiment in the market is not what our team may hear on CNBC or Bloomberg TV, or even what we read from the investment strategists we follow, but rather what we hear outside of the office. Recently, while at a social gathering for my son, a couple families who knew I was “an investment person” commented that “the markets are in trouble, when will they stop going lower?” in reference to recent volatility.

It’s odd at times to be asked those types of questions because truthfully, we don’t know. Timing the market is a fool’s game, but we do rely on sentiment gauges, history, and relative value probabilities to do our best to know when it is an advantageous time to deploy capital on behalf of our clients. As we observe the market today, it’s clear that fear and uncertainty are prevalent. Fear has a sneaky ability to fester on itself and leads to the belief that things can only get worse.

After the S&P 500 hit an all-time high on 2/19/2025, we’ve experienced the 5^th fastest 10% correction in history.¹ We’ve observed Trump policy supporters begin to question his tactics, Wall Street economists are raising their recession probabilities, and investors are rapidly piling into defensive assets, including cash and gold.

The two charts below help paint the picture of the current sentiment. The first chart is a weekly survey from the American Association of Individual Investors that tracks the bull-bear spread, which is the difference between the bearish (pessimistic) and bullish (optimistic) investors. The line freefalling to the bottom of the chart reflects the extreme pessimism or fear in the market.

While it will take years to gauge its success, the Trump administration is embarking on a mission to re-engineer the DNA of the economy and transition to what they believe will be a more prosperous future for the country. More recently, the economic and labor data has softened, but that is to be expected given the strength we’ve seen in recent years as the economy continues to adjust to a post-Covid world. As we think forward to potential clarity on tariffs, a Federal Reserve who is likely to continue to gradually cut interest rates, and productivity benefits driven by investments in artificial intelligence and deregulation, we remain optimistic on the direction we’re heading.

The table below shares 6 instances where the market had a 10% correction as quick or quicker than the current correction. In each of those 6 instances, the market was ultimately higher 12 months later, which is the “win ratio” shown, by an average of+19.9%.¹ We certainly acknowledge that history does not always repeat, but this data serves as a helpful guide and reminder that when fear is at extremes it typically signals an attractive time to be investing. We often say when you receive the most pushback to buy and it feels the loneliest, it’s probably time.

While the S&P 500 Index is down modestly in 2025, the underlying dispersion of individual stock returns is much greater. This below-surface volatility affords the opportunity to reposition portfolios at the individual security level into higher conviction stocks and deploy cash on the sidelines in a way we believe will be beneficial to our client’s long-term goals.

If you have questions or would like to chat, we welcome the conversation. We appreciate your continued trust and business.

Bryce Goldbach, CFA®
Portfolio Manager & Wealth Strategist

3/14/2025