Corrections with and without recessions; Charlie Bilello on 'the price of admission'; Fears over changes at the SEC; Bearish report on IonQ

Catching up on a number of things that have caught my eye in recent days...

1) First up is this chart and interesting analysis from a blog called The Weekly ChartStorm of all 29 S&P 500 Index corrections (a 10% loss or more) since 1965, breaking them down into whether they were accompanied by a recession or not:

Not surprisingly, the 21 corrections that occurred when the economy was not in a recession tended to be brief – lasting only a few months on average – and shallow, with an average decline of 15.4%.

In contrast, five of the eight corrections accompanied by a recession lasted more than a year and the average decline was 36%.

This raises the obvious question: Is our economy going to go into a recession this year? If so, then the market likely still has much further to fall...

The real-money bettors at Polymarket continue to put the odds at less than 50%, though the chances have doubled in the past few weeks due to the uncertainty around the Trump administration's tariff policies. As of earlier this morning, they stood at 41%.

For reasons I've discussed many times, I think these odds are roughly correct.

I continue to believe that our economy is starting from a strong place and that the new administration will reach deals to mitigate the damage from a tariff war.

2) For more on how to think about corrections – and, in general, the risks of investing in stocks – I recommend reading the latest blog post from Creative Planning's Charlie Bilello: The Price of Admission.

It refers to the fact "that large declines and the fear-inducing narratives associated with them are the price of admission for long-term investors."

The most interesting chart was in Bilello's e-mail, but not posted on his blog:

It shows, for each year from 1980 through March 13 of this year, the S&P 500's return and its maximum drawdown during the year. The headline is that the S&P 500 has done incredibly well during this period, compounding at 12.1% per year. But investors also had to suffer an average drawdown of 14.1% each year.

Going back to 1928, the market has had at least a 10% correction 64% of the years. Prior to this year, this had happened as recently as 2023 (and a maximum 8% drop in 2024)... yet the S&P 500 had two of its best back-to-back years ever, rising 26% and 25%, respectively.

In the rest of his post, Bilello dissects the steep market decline in late 2008 and early 2009, early 2020, and late 2022, and shows that the worst headlines were generally right near the bottom.

His conclusion echoes mine:

As I'm writing this, the S&P 500 is in the midst of a 10% drawdown.

How long will it continue?

Nobody knows.

The low might already be in, it could extend into a 20% decline, or it could turn into something much worse.

And that's ok, as long as you're prepared for it. For uncertainty is a feature of equity markets, not a bug.

Bearing that risk is the price of admission for long-term investors in stocks, without which there would be no reward.

3) One of the reasons why the U.S. stock market capitalization accounts for half of the entire world, despite U.S. GDP being only 26% of the total, is because investors believe our markets are among the safest.

While stock promotions and scams abound – I write about many of them! – there are actually far fewer than in most other markets, in part because of a strong regulator: the U.S. Securities and Exchange Commission ("SEC").

John Gavin, who has been following the SEC closely since 2000 and publishes a blog called Disclosure Insight, is worried that this is in jeopardy: With Its Independence Removed, the SEC is Now Being Rapidly Dismantled. Excerpt:

What is certain is this: The SEC's ability to function will be greatly diminished, introducing risk and uncertainty to capital markets that will last for years to come.

No matter your personal politics, if you participate in US capital markets, in any way, you will be impacted by this...

To be clear, what is taking place at the SEC right now is not like those changes that typically occur with each new change in administration. Different president, different priorities. We get it. No, what's taken place at the SEC in recent weeks is of an unprecedented scale that most capital market participants will find unsettling.

I hope Gavin is wrong, but fear he's not...

4) Speaking of promotions, one of the smartest short sellers I know, Sahm Adrangi of Kerrisdale Capital Management, just issued a bearish report on quantum-computing company IonQ (IONQ)...

As you can see, the stock has been on a wild ride since IonQ went public by merging with a special purpose acquisition company ("SPAC") in 2021:

While IonQ has doubled its revenues each of the past two years, that only amounted to $43.1 million last year – accompanied by negative $124 million of free cash flow. Yet the stock today, even down by about half since peaking in January, has a nearly $6 billion market cap.

As the Kerrisdale report, Trapped in the Hype, begins:

We are short shares of IonQ, a $5 billion quantum computing company whose stock has tripled in recent months as retail investors, chasing the "next AI" trade, piled into an industry that has long been plagued by overpromises and hype. Despite retreating from all-time highs, shares still trade at a staggering 40x consensus 2026E revenue – a valuation that defies both logic and the warnings of former IonQ employees, who highlighted monumental scaling challenges that will derail the company's ambitious plans. We believe IonQ is far from being on the verge of a new era of commercial success with its limited, error-prone systems. Instead, investors seduced by IonQ's claimed "history of delivering on technical and commercial milestones" are fixated on relatively immaterial past achievements, while ignoring the existential challenge all early-stage computing companies face: scalability.

And as it concludes:

A cash-burning, highly promotional company in a hot sector valued at absurd revenue multiples, with retail investors piling in and ignoring critical scaling challenge – even as the CEO unloads $37m worth of stock – are hallmarks of a disaster in the making. Quantum computing may hold transformative potential someday, but the path is long, uncertain, and fiercely competitive with better-resourced players (both in quantum and classical computing) vying for dominance. Based on our research, IonQ is not even the clear leader among ion trap-based quantum computing providers. As reality sets in, IonQ shareholders chasing a quantum leap will find themselves wishing they had stayed in a more stable state.

IonQ is an obvious stock to avoid!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.