The Afternoon Bears

It was calm again – for a morning... An afternoon jolt... The easier thing to do... Retail keeps buying the dip... Wall Street is doing the opposite... Recession signals... A time to be patient...

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Something happened at lunch...

For the first couple hours of trading, it was another relatively calm day in the market... The major U.S. indexes were mixed, with the Dow Jones Industrial Average up slightly and the others down slightly.  

Even the equal-weighted S&P 500 was up – at one point, 360 of the index's 500 stocks were showing gains for the day – and volatility was subdued again.

But by the afternoon, things changed.

For one thing, news broke that a Trump announcement on automobile tariffs would be coming later from the White House.

For another, a widely followed Federal Reserve Bank of Atlanta GDPNow model update showed an estimated real GDP declining 1.8% for the first quarter. That's recessionary, and these kinds of readings almost always lead to market volatility.

As a side note... the Atlanta Fed also went out of its way to highlight a reading that stripped out gold imports and exports, resulting in a 0.2% growth forecast. That's suspicious... and just another reason to be bullish on gold, if you ask me (Corey McLaughlin).

After lunch, all the major U.S. indexes were lower, with the tech-heavy Nasdaq Composite Index off almost 2%. The CBOE Volatility Index ("VIX") ticked up by 10% to an intraday high around 19, and the only sectors that were gaining were defensives like consumer staples, utilities, and energy. (Gold was flat around $3,020, just off an all-time high it hit a few days ago.)

In the end...

The S&P 500 finished about 1% lower, and the equal-weighted version was down slightly.

Clearly, Mr. Market hasn't completely moved past tariff talk or the general jittery environment of the past few months... And enough investors and traders are still grappling with mixed messaging and concerns about the economy moving ahead.

For example, in an interview late yesterday with Newsmax, Trump said of his "reciprocal tariff" plans for April 2, "I'll probably be more lenient than reciprocal, because if I was reciprocal, that would be very tough for people."

But less than 24 hours later, the attention was back on new tariffs on automakers, which had been given a one-month reprieve from a separate round of import taxes earlier this month. It may be difficult to keep it all straight. On Wall Street, the easiest approach is to sell first and ask questions later.

Retail investors are still buying the dip...

The recent stock market correction, with the S&P 500 falling 10%, hasn't scared away the herd of mom-and-pop retail investors. According to trading-activity firm VandaTrack, individual investors have plowed $67 billion into stocks so far in 2025.

That's only slightly below the $71 billion in inflows from the fourth quarter of 2024 – when the S&P 500 gained about 2% and the Nasdaq rose about 5%.

Last week, retail investors bought the dip in their favorite stocks... Elon Musk's Tesla (TSLA) saw $3.2 billion in retail inflows last week, while chipmaker Nvidia (NVDA) saw $1.9 billion in inflows.

And during the 10% pullback in the S&P 500, which lasted 15 trading days between February 19 and March 13, retail investors were net sellers on only five of those days... while their big "buy the dip" mentality showed on six days straight.

Meanwhile, the 'smart money' is doing the exact opposite...

As we noted in a Digest last week, professional asset managers have been rushing for the exits.

The most recent Bank of America Global Fund Manager Survey for the month showed the biggest rush to cash since the March 2020 bear market. And in terms of U.S. stocks, the survey has never seen such a large exit from stocks. From that March 18 Digest...

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 professional money managers are limiting their exposure to stocks and holding the most cash they have in five years. Yet at the same time, retail investors are more than happy to take on the risk, especially in the Magnificent Seven stocks. Take note.

You don't want to be the 'average' investor...

Retail investors tend to underperform the market by a wide margin. Over the past 10 years, retail has only outperformed the S&P 500 in one year (2020), according to data from JPMorgan and Bloomberg.

That trend continued last year, with retail investors posting a 9.8% gain. That would've been a great return in the average year, with the S&P 500's annual return being about 9%. But the U.S. benchmark gained more than 20%.

And during market downturns, that underperformance can get even worse. As Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, wrote in a DailyWealth essay this morning...

When the 2022 bear market was at its worst, the average investor wasn't down 24%... but 44%. That's a huge difference.

It took the S&P 500 nearly two years to get back to all-time highs after the 2022 bear market. For folks who saw their portfolios underperform the broader index during that downturn, they likely needed even longer to get back to those late-2021 levels.

It's just one example of why you should avoid the investing herd... And right now, the herd is all-in on stocks, with a buy-the-dip mentality still going strong even amid heavy volatility. Perhaps this correction isn't quite done yet.

While we're still watching for signs of a bottom, if some retail favorites are in your portfolio, now might be a good time to assess those positions and be prepared to see one more leg lower in them. Buying the dip in the Magnificent Seven likely won't end well.

(By the way, don't forget about Marc's free presentation that goes live tomorrow night. He'll share his latest outlook, detail a strategy designed to help you navigate today's volatility, and even share a pair of free recommendations. You can register for free here.)

Recession signals are adding up...

U.S. economic troubles extend beyond short-term market moves. Except for the Dow, major U.S. indexes are below their 200-day moving averages (200-DMAs), a measure of a long-term trend. And longer-term bonds are trending lower as well.

As Stansberry Research senior analyst Mike Barrett wrote in his weekly Select Value Opportunities update today...

Since peaking at 4.8% in January, the 10-year U.S. Treasury yield has been grinding lower. On March 3 it dropped below its 200-DMA for the first time in 2025, closing at 4.18%. Last Friday, it closed just above this trend line, at 4.25%.

What does this mean?

A declining 10-year U.S. Treasury yield can signal a flight from risky stocks into the safety of bonds, especially as the odds of a recession increase...

Note that a falling 10-year yield is good news for borrowers... It means the cost of borrowing capital to expand a business, purchase a home, or replace an aging car is also declining.

When this metric falls, it can also signal that investors are becoming less concerned about inflation. On March 28, we'll get the latest Personal Consumption Expenditures price index data – the Federal Reserve's preferred inflation gauge – to see how this plays out.

In the meantime, two primary sources of inflation – energy and housing – are signaling lower inflation. This often goes hand-in-hand with recessions because declining economic growth diminishes demand for primary production inputs (e.g., raw materials), which in turn, lowers their prices.

As Mike mentioned, the next personal consumption expenditures ("PCE") inflation reading covering February from Uncle Sam comes out on Friday. It's expected to show somewhere in the range of 2.7% year-over-year growth, as we wrote in the March 13 edition, about in line with the month prior.

Patience is key...

Thankfully, our Ten Stock Trader editor Greg Diamond made some sense of the action we've seen today in an update to his subscribers this afternoon.

You might recall that last Monday, Greg shared his technical outlook about the recent market correction. He noted two possible outcomes he was considering to gauge when a "bottom" would be in – one this month and another for some time next month.

The sell-off today could be a piece of that puzzle. As Greg wrote to his subscribers today in an update titled "Tariffs and Inflation"...

We're seeing a drop in technology stocks so far today as the market reacts to more tariff headlines.

Inflation numbers are also in the mix... We get a bunch of data on Friday with the latest Personal Consumption Expenditures ("PCE") index data and inflation expectations from the University of Michigan.

With stocks rallying into this week (at least until today), this plays into the setup of a drop into April/earnings season. But we must get through Friday to see if that's the case.

In other words, Greg said, this setup in U.S. stocks right now still warrants patience. It's not a time to be "all out"... Keep letting those high-quality stocks compound wealth for you. But it may not be a great time to go "all in" putting new money to work, either. Be selective.

New 52-week highs (as of 3/25/25): Alamos Gold (AGI), Antero Resources (AR), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), Cencora (COR), EQT (EQT), Fidelity National Financial (FNF), Intercontinental Exchange (ICE), iShares U.S. Aerospace & Defense Fund (ITA), Royal Gold (RGLD), Sandstorm Gold (SAND), Torex Gold Resources (TORXF), Tradeweb Markets (TW), and VeriSign (VRSN).

In today's mailbag, thoughts on what's driving market volatility... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Greetings, With so much attention on the deficit and debt, which is not sustainable, I think many investors do sense that this time is different. We're not in the position of 'kicking the can down the road,' which Wall Street has always counted on for decades. It's driving the policy of the new administration, and all the daily news is disturbing. At the same time, workers are hearing abundant news about AI and how their job could be at risk as a robot or AI agent is becoming a very real alternative from the perspective of management..." – Subscriber Rodger G.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
March 26, 2025

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