Here's What This Volatility Means for the Bull Market
Editor's note: Over the past few weeks, we've experienced heightened volatility in the stock market. With plenty of uncertainty surrounding inflation and geopolitical conflict, many investors are unsure about how to navigate this roller-coaster market.
But according to Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – this recent uptick in volatility shouldn't discourage you from putting your money to work.
In today's Masters Series – adapted from the March 12, March 31, and April 4 issues of the Chaikin PowerFeed e-letter – Marc details what this volatility could mean for investors and how to prepare your portfolio.
Here's What This Volatility Means for the Bull Market
Folks, the cracks in the economy are growing...
And we've just experienced a dramatic correction. At its lowest point last month, the S&P 500 Index fell 10% from its peak in February. It's still down around 17% from that February high.
The tech-heavy Nasdaq Composite Index is looking rough, too. It's down about 18% from its mid-December peak.
The pullback isn't surprising. Global trade tensions are at their highest level in decades. America is in the midst of a major policy realignment.
Tariffs, where inflation is headed, government services... just about everything you can imagine is up in the air right now.
On top of that, we're starting to see real consumer strain. And it's not just the terrible sentiment I'm talking about...
As Walmart (WMT) CEO Doug McMillon recently said regarding his company's customers...
You can see that the money runs out before the month is gone. You can see that people are buying smaller pack sizes at the end of the month.
Yet at the same time, we're seeing major technology advancements hit the market. I've said it many times before, and I'll say it again... AI is more than a party trick.
Companies are rapidly adopting the new technology. Sure, some of them aren't getting it right. But many are.
So it's no wonder that this is a challenging investing landscape. And I know firsthand that many investors are wondering exactly when the bull market will end...
We can see the mood of fear in the market through CNN's Fear & Greed Index. It's a gauge of investor sentiment based on seven indicators. And in a recent reading, the index stood at 4 out of 100.
That marks an "Extreme Fear" level.
As the legendary Warren Buffett has famously said, "Be fearful when others are greedy, and be greedy when others are fearful." But just last month, he said during an interview with CBS that tariffs are "an act of war, to some degree"... and that "over time, they're a tax on goods."
Meanwhile, Buffett's Berkshire Hathaway (BRK-B) is sitting on a record amount of cash.
Those two quotes neatly sum up the stock market's dilemma right now...
We see a deeply oversold market driven by fear and uncertainty over whether the president's agenda will push the economy in a recession and usher in a period of stagflation.
And a few weeks ago, two key economic reports contributed to the recent sharp sell-off...
The first was the Federal Reserve Bank of Atlanta's recent GDPNow forecast for first-quarter gross domestic product ("GDP") growth.
In the most dramatic shift on record, this model predicted an annualized drop in GDP of negative 2.8% in the first quarter of 2025. That was down from a forecast of positive GDP growth of 2.3% just one week earlier.
Meanwhile, the Institute for Supply Management's ("ISM") Purchasing Managers' Index ("PMI") report also spooked the markets...
The ISM Manufacturing PMI fell in February and pointed to slower growth in the manufacturing sector of the U.S. economy.
Importantly, it showed demand easing while prices paid were increasing. That's the classic definition of "stagflation."
Some commentators are discounting the negative GDP forecast and the increase in prices paid as caused by front-running in February by corporate purchasing managers ahead of the expected tariffs.
We'll have to wait and see about that. It's another uncertainty in an extremely uncertain period.
For now, the fear and likelihood of stagflation is very real. And that's weighing on stock prices.
So, the real question is... What does this mean for us as investors?
First, we have to consider the tariffs recently announced by President Donald Trump. They're serious business. It's a fundamental shift in the global economic exchange.
We all know that it will take businesses time to react. And that's the biggest problem in the short-to-medium term.
But we've already seen automaker Stellantis (STLA) pause production at plants in Canada and Mexico for multiple weeks and temporarily lay off 900 workers in the Midwest.
If we stay on this current path, many businesses will have to revise earnings estimates downward. That will create incredible selling pressure in the markets.
This pattern could play out across the broad market. And it's one that would significantly reduce earnings.
Put simply, unless something dramatic changes, this is the sort of situation that could lead to a worldwide recession... and recessions lead to bear markets.
If you are a long-term investor, hope for the best – but prepare for the worst.
Hold on to your core positions. But if you're worried about positions keeping you up at night, "sell down to your sleeping level"... so that you don't panic if the market drops precipitously.
If you're a trader or intermediate-term investor who has followed our advice to "buy the dips," protect your capital with stop losses that limit your downside risk.
As the facts and situation change, I'll continue to adjust my outlook accordingly.
Here at Chaikin Analytics, my colleagues and I will be here to guide you through these turbulent times.
Good investing,
Marc Chaikin
Editor's note: With volatility spiking recently, many investors are concerned we could be nearing the "death of the bull market."
But according to Marc, this roller-coaster market signals we're on the cusp of a huge moneymaking opportunity – if you understand how to prepare for what's coming.
That's why he just went on camera to reveal exactly what you must do to protect your wealth. Learn more here...