A Rush to Cash

A short-lived bounce... Volatility isn't going away just yet... Investors are running for the exits... Corrections are normal... A strategy that embraces volatility... All eyes on the Fed...

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A short-lived bounce...

After hitting a six-month low (and entering a correction) on Thursday, the S&P 500 Index moved higher on Friday and Monday.

In fact, it saw its largest gain in four months on Friday. As of yesterday, the index was up nearly 3% from Thursday's close. Plus, more than 90% of stocks in the S&P 500 were up.

But today, the mini rally ended.

Both the S&P 500 and the Nasdaq fell more than 1%. That wiped away the previous days' gains. And both indexes are still in or near correction territory, with the S&P 500 down 8.6% from its high on February 19, and the Nasdaq 100 down 12.1%.

Big Tech stocks continue to lead the way lower, with Alphabet (GOOGL) falling more than 2% today. Meta Platforms (META), Nvidia (NVDA), and Tesla (TSLA) fell more than 3% for the day. All 11 S&P 500 sectors finished lower today.

Meanwhile, gold continues to rally – crossing $3,000 per ounce this week and reaching a new all-time high. Gold is now up more than 14% so far this year.

The CNN Fear & Greed Index also shows that bonds have outperformed stocks by about 10% over the past 20 trading days.

So there's a clear trend of investors rotating into safe-haven assets today.

More signs that markets are still on edge...

For starters, the American Association of Individual Investors survey (which asks its roughly 150,000 members whether they're bullish, neutral, or bearish on stocks) shows that investors are extremely pessimistic about stocks today. Around 60% of respondents said they're bearish on stocks over the next six months. That's one of the most pessimistic readings on record.

The CBOE Volatility Index ("VIX") – considered by some as the market's "fear gauge" – also remained above the key level of 20 today, closing at 21. Put simply, a reading above 20 means that investors expect above-average volatility in the markets over the next month.

While that's not the type of spike we saw last August or during the 2022 bear market, volatility expectations are still elevated today. And for good reason...

With rising consumer debt, an ongoing tariff war, and a worsening job market, investors have a lot to worry about.

And yesterday, there was more news on the tariff front.

President Donald Trump's economic adviser Kevin Hassett told CNBC that there's going to be no break from tariff-driven headline risk just yet.

In his interview, Hassett said "absolutely" there's going to be uncertainty between now and April 2 – when Trump is set to make an announcement on the next wave of tariffs.

The U.S. Economic Policy Uncertainty Index – which measures the level of uncertainty surrounding future government policies – is sitting at its highest level ever outside of the COVID-19 pandemic. A few more weeks of whipsawing tariff headlines means markets won't catch a break from the uncertainty anytime soon.

Meanwhile, Google searches for the term "recession" hit the highest level in more than two years last week, according to Bloomberg and Bravos Research.

With all of this fear and uncertainty, investors are heading for the exits...

Bank of America's survey of money managers, of whom have a combined $426 billion in assets under management, shows investors are raising cash and leaving stocks.

In March, fund managers raised their cash levels to 4.1%, from 3.5% in February. It was the largest cash raise in the survey since March 2020, when COVID-19 pandemic fear was at its peak.

Back then, markets fell a lot further than the 10% we've seen so far. From its high in February 2020 to the low toward the end of March 2020, the S&P 500 fell around 35%.

This month also saw the largest outflows from U.S. stocks in the history of the survey. Fund managers reduced their U.S. equity exposure by 40 percentage points, making their total allocation to U.S. stocks 23% underweight. So fund managers now hold fewer equities than their benchmarks.

And it wasn't just U.S. equities. According to the survey, fund managers reduced their exposure to all equities by about 30 percentage points.

But it's important to remember that corrections are normal...

That's what Treasury Secretary Scott Bessent said in an interview with NBC's Meet the Press on Sunday. Bessent said that the new administration is working to put government spending on "a sustainable path."

He also said that he's not worried about the recent market correction nor stocks recently having their worst week in two years...

I've been in the investment business for 35 years, and I can tell you that corrections are healthy. They're normal. What's not healthy is straight up, that you get these euphoric markets. That's how you get a financial crisis. It would have been much healthier if someone had put the brakes on in '06, '07. We wouldn't have had the problems in '08.

Our colleague Dr. David "Doc" Eifrig agrees. He has been writing that we've been overdue for a correction for a while.

Doc says it's normal for markets to fall 10% or more during a prolonged bull market. As he wrote in the 2025 outlook for his Retirement Trader newsletter in December...

As I always like to say, corrections – that is, drops of 10% to 20% – are a normal part of the market cycle.

Even during the last great speculative market run during the dot-com boom, the tech-heavy Nasdaq Composite Index fell roughly 10% four times on its way to a 255% return.

So a 10% pullback – or more – isn't a reason to panic. And as Doc explained in his Retirement Trader issue last week, there are still positive factors in the economy...

But in the end, businesses are still enjoying high profits, and the U.S. consumer is proving resilient. Consumer spending is at $20.4 trillion, just off an all-time high.

What we're seeing today is more than likely just a lot of the tech speculators getting spooked and heading for the exits... And that's a good thing for this bull market in the long run.

Still, our Stansberry Research offices haven't been immune to investor fear. As Doc explained in last week's Retirement Trader...

In this most recent pullback, many of my colleagues have been bombarded with anxious questions about the market.

Doc's Retirement Trader subscribers tell a different story...

As Doc says…

Aside from a few technical questions about options, the Retirement Trader feedback inbox hasn't seen much activity...

No fear-induced e-mails... or questions about whether we're going to change our strategy or what we're doing next.

In short, volatility like we're seeing today is exactly what the Retirement Trader team wants to see. The higher the VIX, the more investors are willing to pay for downside protection on their portfolios. That's great news for Retirement Trader's options trades.

But it's not just Doc's options-selling strategy that's helping subscribers navigate volatility. The companies Doc and his team recommend also play a huge part. As Doc wrote last week...

A good reason why we haven't seen any panicky e-mails hitting our inbox is because the stocks we own have held up well over the past couple weeks. We own a lot of defensive, high-dividend-paying, low-beta stocks.

In short, Doc recommends buying quality, high-dividend-paying companies... not high-flying technology and artificial-intelligence stocks – which, as we said, are leading the sell-off. Paid subscribers and Alliance members can read Doc's most recent issue right here.

Looking ahead...

We expect more volatility tomorrow when the Federal Reserve wraps up its latest two-day policy meeting. Fed Chair Jerome Powell will also host a press conference about the Fed's latest policy decision.

According to the CME Group's FedWatch tool, markets are pricing in a 99% chance that the Fed will keep interest rates steady.

The central bank will also share its outlook on things like inflation and unemployment. In its most recent projections, the Fed raised estimates for unemployment and inflation in 2025, while lowering its projections for GDP growth. Wall Street is expecting more of the same from this meeting...

According to March CNBC Fed Survey, fund managers lowered their GDP growth estimates for 2025, while also increasing their inflation outlook and estimated chance of a recession this year.

But anything outside expectations could shake up the markets.

We'll be back tomorrow with an update on the meeting, policy announcement, and Powell's press conference.

New 52-week highs (as of 3/17/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), Blackstone Mortgage Trust (BXMT), CME Group (CME), Dimensional International Small Cap Value Fund (DISV), Fidelity National Financial (FNF), Franco-Nevada (FNV), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), Sprott Physical Gold Trust (PHYS), Royal Gold (RGLD), Roche (RHHBY), Sandstorm Gold (SAND), Torex Gold Resources (TORXF), Tradeweb Markets (TW), ProShares Ultra Gold (UGL), and Wheaton Precious Metals (WPM).

In today's mailbag, thoughts about inflation, stemming from our recent report on the latest inflation data being interpreted as "good news" by the market... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Corey, I don't find 2.8% or 3.1% inflation to be acceptable. For a stable dollar the inflation rate should be zero period. The average inflation rate since January 1950 has been 3.53% for the CPI and this is with a Federal Reserve self-imposed target of 2% since 2012... This historic inflation rate of 3.5% is silently destroying American citizen's incentive for saving and is totally unacceptable!

"I am pushing for President Trump and the Republicans and Democrats in Congress to make ZERO as the target inflation rate for the Fed. It should be based in law not just a self-imposed target by the Fed. To keep inflation in check the US Congress should also pass a balanced budget amendment and send it out to the states for ratification. Both of these issues have to be solved if we are ever going to have a stable dollar...

"Of course, I have no real expectation that either of these issues will ever come to pass in my remaining lifetime, which is now only 22.9 years according to the IRS RMD table. Good luck to us all! We will all need it." – Subscriber Nelson D.

All the best,

Nick Koziol
Baltimore, Maryland
March 18, 2025