Correction Territory
Trump shrugs off the market drop... 'You can't really watch the stock market'... The market sell-off continues... Some glimmers of hope...
Full steam ahead...
Last Tuesday, President Donald Trump said a "little disturbance" is "OK" in his speech to Congress about his tariff policies' influence on the economy and markets.
During an interview yesterday, Fox News host Maria Bartiromo asked him to clarify what he meant. Trump essentially repeated the same idea again...
Bartiromo: When you came into the Oval Office the first time... a lot of people said, "This is the business president. He's watching the stock market. He doesn't want the market to go down." Now we've got tariffs and the market has been going down.
Trump: Well, not much, in all fairness.
Bartiromo: You said we're going to have a disruption, but look, we're OK with that. Is that what you meant: the stock market going down? What other disruption are you alluding to?
Trump: It could be a little disruption. Look, what I have to do is build a strong country. You can't really watch the stock market. If you look at China, they have a 100-year perspective. We have a quarter (laughs). We go by quarters. You can't go by that. You have to do what's right.
We're building a tremendous foundation for the future.
In other words, Trump says he isn't concerned with the post-election "Trump bump" being erased, and then some, as of today. With about a 3% drop today, the benchmark S&P 500 Index is now at the same level it was for much of August 2024 and the start of September.
On Sunday, Trump went on to say that April 2 will be a big day. That's when he plans to impose reciprocal tariffs on all of the U.S.'s trading partners – an eye for an eye.
On a recession and more 'clarity' in tariffs...
The "r-word" has returned to the mainstream financial media lately. "Will we see a recession?" Bartiromo asked. Trump responded...
I hate to predict things like that. There is a period of transition, because what we're doing is very big. We're bringing wealth back to America... There are always periods of – it takes a little time. It takes a little time, but I think it should be great for us.
And to heck with CEOs' and investors' calls for more "clarity" on tariff policies, which seem to shift by the day. Bartiromo asked on their behalf, "Are they going to get clarity?"...
Trump: I think so, but the tariffs may go up as time goes by...
Bartiromo: So that's not clarity.
Trump: I think they say that. It sounds good to say. But for years, the globalists, the big globalists have been ripping off the United States. They've been taking money away from the United States. All we're doing is getting some of it back.
To me (Corey McLaughlin), Trump sounds intent on tackling what he believes has been a problem since the 1980s. Watch this old David Letterman interview, starting around the 14:50 mark, and you'll find that Trump is saying nearly the same thing today as he was four decades ago.
Mr. Market also has a short memory. Trump ignited a similar trade war seven years ago. So far, the S&P 500's performance during the start of this war has followed in almost identical fashion to last time, as we pointed out last week.
The latest development in the trade war has been China imposing retaliatory tariffs on U.S. imports, specifically 15% levies on agricultural products like chicken, wheat, corn, soybeans, pork, and beef.
This is exactly the kind of thing we said to look out for last week. We expect the U.S.-China relationship to remain on center stage in the weeks and months ahead.
The issue is that markets – which are at their root a representation of human nature – often fear uncertainty more than anything else.
Today, the market sell-off continued...
The major U.S. stock indexes dropped again today, with the Nasdaq Composite Index falling by roughly 4% and formally entering a correction (more than 10% below its February 19 all-time high).
The S&P 500 lost 2.7% today and is down more than 8% from its all-time high last month. It also closed below its 200-day moving average for the first time since October 2023.
Some sectors were up today (more on this below). But if there is going to be a near-term broad market "bottom" soon, it might need a little more time. One of Stansberry Research's proprietary indicators points to at least some more downside.
Regular readers of our flagship Stansberry's Investment Advisory might recall that last March, the Stansberry Research Complacency Indicator flashed a warning sign – predicting a 10% correction in stocks within 12 months. This has been an extremely accurate indicator.
As the Investment Advisory team explained in their most recent indicators update...
Our indicator has predicted 10 out of the last 12 market corrections or greater over the past 35 years, with only one "false signal" that preceded a market drop of 8.9%. The last time our indicator flashed a warning was in March 2023. And it correctly predicted that year's correction that lasted from July to October.
In short, this indicator is a way to measure investor sentiment by considering options, the yield curve, and credit spreads. When it flashes a warning, taking the contrarian view is wise. From the Investment Advisory team...
We know that when the masses of individual investors stop worrying and pile into stocks, it's a sign of a market top.
After the Complacency Indicator signal flashed a year ago, we almost got a correction when the S&P 500 fell 8.5% between July 16 and August 5.
Now, we're once again approaching formal "correction" territory in the S&P 500, with it just a few percentage points away from a 10% drop from its February 19 high.
We may be in for another volatile week ahead...
In the very short term, there's still a ton of selling pressure on headline risks like tariffs, the labor market, and inflation – which will be a big story when February's consumer price index and producer price index numbers are released on Wednesday and Thursday.
The inflation numbers will impact expectations for what the Federal Reserve might do at its policy meeting next week.
In the meantime, the S&P 500 breaking its long-term, 200-day moving average and dipping below a previous support level of around 5,700 is significant. But we're also looking for more signs of this correction cooling down as well.
Ten Stock Trader editor Greg Diamond says he is, too...
Greg wrote to subscribers today, "we could be very close to a bottom" and shared the technical pattern that he sees setting up. He wrote...
We're continuing to look at various scenarios within this broad pattern. (In some stocks, the correction might have already completed.)
And with countless examples of divergence, there's still plenty of investor pessimism... As of this writing, the CNN Fear & Greed Index continues to signal "Extreme Fear," at 17.
But remember, this is all happening within a corrective bull market.
We saw some glimmers of hope today...
The energy and utility sectors of the S&P 500 were actually up. These are widely considered "defensive" sectors that get a boost in uncertain times. But these sectors would likely be heading lower if we were seeing a full-fledged market crash.
This doesn't look like that. As our Director of Research Matt Weinschenk wrote on Friday in his latest This Week on Wall Street update...
Let me point you to some signs of calm in this market...
We'll start with the CBOE Volatility Index ("VIX"). It's often called the market's "fear index" because it's used to gauge investors' expected volatility.
I don't love the nickname – as it's not precisely what it measures – but it's a reasonable shorthand.
What the VIX really reflects is the cost of insuring against stock losses (i.e., the prices of options) over the next 30 days.
When the VIX is low, it means investors don't expect much volatility (so they aren't paying for the protection that options afford). When the VIX is high, investors are fearful of volatility (and options become more expensive).
In our experience, true market volatility begins when the VIX is around 30. When it rises above 40, it signals peak fear (and a potential buying opportunity). Today, the VIX is at 25 [Editor's note: Today, it "only" ticked up to 28], so it remains below fear territory...
Matt also pointed to high-yield credit spreads. When this spread is high, it means junk-bond investors are fearful and demand a higher yield for added credit risk. Today, this spread is still low, meaning bond investors aren't worried about the economy breaking down.
DailyWealth Trader editor Chris Igou also wrote about this indicator to subscribers today, reaching the same conclusion.
So while this correction might feel painful, it may be closer to its end than its beginning. We'll keep watching our indicators for suggestions that something else is afoot. But for now, you may find some good buying opportunities while "everyone else" is fearful.
New 52-week highs (as of 3/7/25): AbbVie (ABBV), Alpha Architect 1-3 Month Box Fund (BOXX), Church & Dwight (CHD), Dimensional International Small Cap Value Fund (DISV), SPDR Euro STOXX 50 Fund (FEZ), Gilead Sciences (GILD), Jack Henry (JKHY), McDonald's (MCD), Medtronic (MDT), Altria (MO), Paychex (PAYX), Roche (RHHBY), and the Vanguard FTSE Europe Fund (VGK).
In today's mailbag, feedback on last Thursday's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Corey and Nick, Fantastic article last Thursday the 6th. I learned a lot and read it twice. Keep up the great work. I always listen to the Investment Hour and really enjoy it." - Stansberry Alliance member Dale H.
All the best,
Corey McLaughlin and Nick Koziol
Baltimore, Maryland
March 10, 2025