The latest charts that caught my eye; Why I'm not surprised to see a pullback

After peaking a mere three weeks ago, stocks have moved sharply lower...

Through yesterday's close, the S&P 500 Index is down 9% from its February 19 high.

Meanwhile, the tech-heavy Nasdaq Composite Index peaked on December 16. And after a 4% loss yesterday – its worst day since 2022 – it's down 13% since that peak.

So in the midst of this market chaos, today I'll share some of the charts related to all this that recently caught my eye...

As you can see in this first one, stocks are now back to where they were on the eve of the election (chart courtesy of Silver Bulletin, which is by statistician Nate Silver):

And as measured by the Russell 2000 Index, smaller stocks – which are perceived to be more economically sensitive – are down much further (chart from the Wall Street Journal):

And as this table shows (again, courtesy of Silver Bulletin), U.S. stocks are trailing European ones since the election – a reversal of a long-term trend:

Here's a series of charts (from Fundstrat, and which I saw posted on social platform Threads) that compares the performance of eight different markets since President Donald Trump took office on January 20 with the same period after he took office eight years ago:

To be clear, I'm not making any political statement with this...

I'm simply pointing out that while the president is the same as eight years ago, his policies have been substantially more aggressive in the areas of tariffs, foreign affairs, deportations, and cutting federal government spending (which accounted for 23.4% of GDP last year).

When combined with much higher stock valuations, the result is that investors have pulled back.

And while I didn't exactly predict this, I'm not the slightest bit surprised...

I've been warning for months that investors should have modest expectations with regard to stocks. And I've also noted that with short-term interest rates above 4%, cash is a perfectly acceptable alternative.

But should you be selling aggressively and raising cash now to ride out the current turmoil?

Before I answer, I'll share this excellent commentary by WSJ columnist James Mackintosh on the bull and bear case: Markets Finally Woke Up to Tariff Reality. Is This a Buying Opportunity?

Regarding the former, he writes:

... in the short term, this feels like a very rapid selloff that at the least undoes much of my concern about the excess in markets. Investors have shifted from being super-positive to focus instead on the dangers. When sentiment turns sour, it is often a good time to pick up bargains.

But he has "trouble turning bullish for the long run" because of three concerns:

First, prices haven't moved that much. U.S. stocks weren't cheap on Nov. 5, and aren't cheap now. Stocks are still above 21 times estimated earnings for the next 12 months (their dotcom-era high 25 years ago was 25 times)...

Second, the bad parts of Trump's agenda, tariffs in particular, are paralyzing business and scaring consumers. Economic data has weakened and come in below expectations, prompting the most recent leg down in stocks. If hiring and expansion plans are put on hold because of uncertainty about trade, weakness could spread...

Third, the good bits of Trump's agenda are also in question.

As Mackintosh concludes:

Investors who think the economy is merely going through a soft patch, that tax cuts will be big and that the administration will manage worthwhile deregulation should be thinking about buying. I'm glad the froth has been blown off, but I'm in wait-and-see mode – also known as paralyzed by uncertainty.

The U.S. economy is enormous, and it's starting from a very strong base to weather any shocks. That's why I think the real-money bettors on Polymarket are likely correct in assessing the odds of a recession this year: While the odds have surged in recent weeks, they're still at less than 50%. As of earlier this morning, they stood at about 40%.

In conclusion, my views haven't changed...

I don't think this is one of those once-a-decade, bubble-bursting moments or a "black swan" shock like the COVID-19 pandemic. So if you own good stocks and/or funds, sit tight and don't panic.

It's a sucker's game to try to time the market. And, as legendary investor Bill Miller wisely said, "If it's in the headlines, it's in the stock price." (And here's a representative headline from the WSJ yesterday: The Mounting Case Against U.S. Stocks.)

Best regards,

Whitney

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