Why You Need an Open Mind to Succeed in Today's Market
Editor's note: You can use today's economic turmoil to your advantage...
The uncertainty around inflation and heightened geopolitical tensions has fueled a lot of market turbulence over the past few months. This has caused many investors to sit on the sidelines.
But according to Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – you must be willing to adapt to this volatility to keep profiting from the market.
In today's Masters Series, adapted from the March 31 and April 4 issues of the Chaikin PowerFeed daily e-letter, Marc explains why keeping an open mind is critical to surviving this ongoing economic uncertainty...
Why You Need an Open Mind to Succeed in Today's Market
You might have heard this famous quote attributed to renowned economist John Maynard Keynes...
When the facts change, I change my mind – what do you do, sir?
On March 12, when the S&P 500 Index ended up closing at 5,599.30, I said this to Chaikin PowerFeed readers...
As regular readers know, my "bull market" scenario for 2025 is based on a strong economy and the past 100 years of election-cycle data that show strong stock market performance in a post-election year.
But if stagflation becomes a reality and earnings suffer, I'll adjust my outlook.
Well, President Donald Trump held his "Liberation Day" address in the late afternoon on April 2. And he announced a broad swath of tariffs against most of America's trading partners.
These were much worse than expected. And not surprisingly, the market didn't react well.
Make no mistake... tariffs are a tax on the American consumer. And "Mr. Market" knows that.
Well, the S&P 500 collapsed by nearly 5% on April 3, closing at 5,396.52. That means it broke below its March low of approximately 5,500.
The tech-heavy Nasdaq Composite Index has faced turbulence, too. By now, it's down about 12% from its mid-December peak.
The pullback isn't surprising, though. Global trade tensions are at their highest level in decades. And 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.
Since Trump's inauguration on January 20 – and even before the big tariff announcement last month – the facts on the ground have been changing. In fact, just about everything has been changing...
The technical picture has been breaking down... the economy has stalled... and persistent inflation is poised to go much higher because of tariffs.
Three weeks before Trump's tariff announcement, there was evidence of rising inflation and a slowdown in the manufacturing economy. As I said in that same March 12 PowerFeed, two important economic reports had already contributed to a sharp sell-off...
The first was the Federal Reserve Bank of Atlanta's recent GDPNow forecast for first-quarter 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.
I also noted that...
Meanwhile, the Institute for Supply Management's ("ISM") Purchasing Managers' Index ("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."
So, the real question is... What does this mean for us as investors?
First, the proposed tariffs are serious business. They mark 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.
If we stay on this current path, many businesses will have to revise their earnings estimates down. That will create incredible selling pressure in the markets.
This pattern could play out across the broad market. And it could significantly reduce earnings.
Put simply, unless something dramatic changes, this sort of situation could lead to a worldwide recession... and recessions lead to bear markets.
If you're a long-term investor, you can 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.
Again, as the facts and situation change, I'll continue to adjust my outlook accordingly.
At Chaikin Analytics, my colleagues and I will be there to guide you through these turbulent times.
Good investing,
Marc Chaikin
Editor's note: During a special on-camera presentation yesterday, Marc discussed exactly where he sees this bull market going.
He revealed what investors must do to prepare... and also detailed a key change to his one-of-a-kind Power Gauge system.
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