Let's Make a Deal

All looked good today... The market is banking on tariff negotiations... 'Buy the dip' is alive and well... What happens at market bottoms... It's not time to panic sell... What history says...

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The wild ride continues...

A day after what looked like another round of broad-based selling, the major U.S. stock indexes each closed more than 2.5% higher today amid what appeared to be some "less bad" news on the trade-war front...

Treasury Secretary Scott Bessent reportedly told a group of investors at a private JPMorgan Chase event today that he expects "there will be a de-escalation" in the tariff war with China in the "very near future," according to anonymous sources who were in the room.

While volatility remains relatively high – above 30 on the CBOE Volatility Index ("VIX") qualifies – every major S&P 500 Index sector was higher today, bitcoin eclipsed $91,000 again, and longer-term bond yields were stable. All looked well.

But while the mainstream financial media outlets like Bloomberg and CNBC jumped on the "deal with China possibly coming" story today, it really shouldn't come as any surprise...

The art of the deal...

President Donald Trump himself told reporters Thursday in the Oval Office that a trade agreement with China and other nations could come as soon as "over the next three or four weeks... maybe the whole thing could be concluded." Trump said...

I think we're going to make a deal with China. We're going to make a deal with everybody, and if we don't make a deal, we'll just set a target and we'll live with that, and it will be fine, too.

Trump later said he was open to "not even go up to that level," meaning 145% tariffs on China, "because you want people to buy and at a certain point people aren't going to buy." He continued, outlining his public position...

We're a big, beautiful department store and everybody wants a piece of that store. China wants it. Japan wants it. Mexico, Canada – they live off it, those two. Without us, they wouldn't have a country... And at a certain point if we don't make a deal, we'll set a limit. We'll set a tariff, we'll set some parameters, and we'll say, "Come in and shop."

They may not like it... or the market might find it too high. More likely, the market. Or the country may find it too high... Then they'll come back and say, "Well, we think this is too high and we'll negotiate" or they're going to say something else, "Let's see what happens."

Perhaps relatively few on Wall Street were listening to or saw this particular exchange. Everyone else needed to hear it from the treasury secretary instead. After all, it's difficult to predict how things progress from here amid the ongoing "90-day tariff pause"...

But we're hearing a few things: First, Trump's open to negotiating with China and anyone else on lower tariff rates, and he's also willing to use – and is sensitive to – the market as a barometer on negotiations. We already saw this with the bond market getting "queasy," in his words, earlier this month in the week after "Liberation Day."

(In the meantime, Trump also wants Federal Reserve Chair Jerome Powell out of a job... or, at the very least, for the Fed to lower interest rates while the stock and bond markets try to figure out what's going to happen next. The president called Powell a "loser" yesterday on social media and urged him to lower rates "NOW.")

Amid it all, speculators aren't going away just yet...

It shouldn't be a surprise that market fear gauges have swung towards fear in recent weeks. Tariffs, geopolitical uncertainty, and more have investors on edge. And that's showing up in investor sentiment readings...

CNN's Fear & Greed Index is still showing "Extreme Fear," and the American Association of Individual Investors' ("AAII") Investor Sentiment Survey has shown more than 50% of folks have been bearish for eight straight weeks – the longest streak ever in the survey since it began in 1987.

But even though a lot of people may be skittish, a lot of others are still snapping up stocks...

The "buy the dip" mentality is alive and well...

According to the Stansberry's Investment Advisory team's proprietary money-flow gauge, the public is still pouring money into stocks at levels that mark a warning sign.

At the end of March, the gauge showed that an average of $49 billion had flowed into exchange-traded funds ("ETFs") and mutual funds every month over the past six months. Our team considers anything more than $20 billion to be a "bearish" contrarian indicator...

The public's opinion about the attractiveness of stocks plays a significant role in stock prices. When the public is eager to buy stocks ("inflows"), prices are quickly bid higher. When the public is selling stocks ("outflows"), prices usually become very cheap. That's why we're most interested in buying stocks when the public isn't.

There's a saying on Wall Street that's wise to remember: When the ducks are quacking, feed them. In short, when the public is buying huge amounts of shares, it's time for smart investors to sell. In the year 2000, for example, money flows into stock mutual funds... reached a peak. That was a horrible time to buy stocks.

Fund flows haven't flashed a "bullish" money-flow signal – with net outflows from ETFs and mutual funds – since December 2020 (they also came close to triggering a bullish signal during the 2022 bear market recovery).

And today, folks are not just buying up individual stocks that have been beaten down. They're buying the dip in more speculative investments: leveraged ETFs. Take a look at this chart from Bloomberg Intelligence (and shared on X by Barchart) showing leveraged long ETF flows through last week...

Leveraged long ETFs – which offer double or triple the daily return of "regular" ETFs – have seen inflows for seven straight weeks. In a single week this month, those inflows totaled $6.6 billion. That was more than double the largest weekly inflows from the past two years.

So not only are folks buying the dip, they're doing it in leveraged long ETFs to try and boost their returns from a stock market rebound.

The leverage in these ETFs means that investors get twice or three times the gains when the funds are going up... and twice or three times the losses when they're going down. These funds are what you buy when you're sure things will go great – not when you're considering the possibility of stocks falling.

So yes, in general, investors are more skittish today than they were at the end of 2024, as measured by things like the CNN Fear & Greed Index and AAII sentiment poll. But we're also still seeing "buy the dip" behavior that you don't typically see at a market bottom.

A timeless lesson...

We're reminded here of something Stansberry Research icon Dr. Steve Sjuggerud wrote back in a 2020 issue of True Wealth...

The stock market will not bottom when it is all over the mainstream news.

It won't. It can't.

The bottom only arrives long after that... when the stock market falls out of the news completely... when most people have forgotten about Wall Street. Until that happens, stocks can continue to fall.

As Steve explained, what you really want to watch for isn't hatred toward stocks... It's indifference.

At big market bottoms – real "capitulation" moments, when folks give up all hope they can ever make money in the market – nobody wants to touch stocks even if they're sitting on a giant pile of cash.

The problem with (and signal from) leveraged ETFs...

Strong flows into leveraged ETFs are a great sign of a speculative fervor in the market. When stocks are in a bull market, investors can pile into these funds to boost their returns.

But, as our colleague Dan Ferris wrote back in our January 3 Digest, "Buying securities with leverage is a great way to lose a lot of money fast." And their popularity among investors is similar to what happened in the run-up to the stock market crash of 1929.

From that Digest...

Back then, many investors were little more than gamblers. They bought stocks on margin with as little as 10% down. So they could buy $100 worth of stock for $10 in cash. If the stock went up 10%, they'd double their initial investment. But if it fell 10%, they were wiped out.

So the recent inflows into leveraged long ETFs are still a warning sign for stocks – especially if the correction in the S&P 500 drags on (or even enters a bear market). As Dan concluded in that Digest...

Folks don't seem to understand that, yes, leverage offers the possibility of much higher returns than non-margin trading... but it also has a much higher likelihood of financial ruin.

Again, we're not seeing the kind of capitulation from investors that we typically see around market bottoms. Folks are still piling into stocks, and leveraged long ETFs are still seeing huge inflows as folks look to buy the dip.

That's a reason to have some caution today, and at the very least expect some more volatility should today's various market fears persist.

But we don't recommend panic selling, either...

While we wouldn't recommend buying leveraged ETFs right now, neither should you go "all out" of stocks.

We can't tell you right now exactly when the market will bottom, or if it has already happened (though, if it's in the past, a few Mondays ago feels like a possibility). Either way, history tells us stocks are generally higher in the longer run after broad sell-offs like we've already seen.

As our colleague and DailyWealth Trader editor Chris Igou explained to his subscribers yesterday, panic selling during quick market downturns could cost you portfolio gains over the longer term. As he wrote...

We're coming off an 18.9% drop in less than two months. That's a fast crash. And it's no surprise that fear is high. But instead of being frozen by fear, let's turn to the numbers.

We looked at every case where the S&P 500 Index fell 15% or more over a rolling two-month period since 1950.

If you're considering going "all in" on cash right now, you might want to think again. That's because the win rate for the S&P 500 is overwhelmingly positive over the next 12 months... It was up 82% over that period.

Importantly, the returns crush a simple buy-and-hold strategy. Check it out...

The annualized return on the S&P 500 since 1950 is 7.7%. That's the benchmark return for the market. But after sharp drops like we saw in early April, the upside potential gets a lot better.

Returns change to 2.8% in one month, 4.9% in three months, 10.4% in six months, and 16.7% over the next year.

Every period we tested also had a strong win rate. The one-month win rate is 71%, while the three-month and six-month periods are 76% and 82%, respectively.

But this history also doesn't mean "blindly owning U.S. stocks," Chris says. For now, his DailyWealth Trader system is still bullish for the overall market. But that can change. And Chris and his subscribers are prepared if it does. More from Chris...

And if our U.S. market system turns to sell mode, we'll get out. But that doesn't mean we just go straight to cash, either.

We also have trades in gold, silver, commodities, and foreign stocks. By spreading out our positions, some markets will likely pick up the slack if U.S. stocks fall.

Holding a diversified portfolio like this can help protect your wealth during volatile periods – especially times when markets are overcrowded in the most popular stocks. In the meantime, let your high-quality stocks keep compounding, have exposure to hard assets like gold, and sleep a little easier.

Speaking of gold...

With markets rattled by new tariff announcements and investors seeking stability, gold is once again stepping into the spotlight. Gold's spot price is up nearly 30% in 2025 alone... and more than 45% over the past 12 months.

But in times like these, according to the folks at Stansberry Asset Management ("SAM") simply owning gold isn't enough. It's about how you use it to protect and position your wealth.

SAM is a U.S. Securities and Exchange Commission-registered investment adviser, separate from our publishing businesses. Its team recently joined forces with gold expert Rich Checkan of Asset Strategies International for a powerful discussion on where gold could go from here – and how gold can play a critical role in your financial strategy.

In this timely discussion, you'll discover:

• What's driving gold's surge in uncertain markets
• How to use gold for long-term wealth preservation
• Smart strategies for buying, storing, and passing gold to future generations

If you missed SAM's live webinar last month, you can watch an on-demand replay of the video now.