Greetings & Happy Summer.
Today is the 4-month anniversary of the April 7th ‘Tariff Tantrum’ stock market low. That day also happens to be the last time LJI shared any thoughts on the financial markets via “It’s Different This Time”. While we try not to add to the never-ending noise in the financial media, we also don’t want to send commentary only when the markets are in a steep decline.
To revisit, the stock market was down roughly 10% heading into President Trump’s Liberation Day press conference the afternoon of April 2nd. The US markets essentially fell another 14% thru that 4/7 low, just 3 business days later. The selling/panic was historic on several levels.
Our note in April was similar to prior messages during market panics: While the reasons are always different, fear-driven selling has literally NEVER been a smart decision.
Today, we want to cover a few ‘stats’/facts that help us stay objective during those very crazy, confusing and, yes, scary periods, when the markets decide to head south FAST.
Ultimately, there are really only two variables that move markets, or more specifically, make up prices in the markets: buyers and sellers. When prices go up, there are more buyers than sellers. When prices go down, the sellers outnumber buyers. (Thanks, Master of the Obvious).
What drives buying and selling? The answer to that question is Fear and Greed. Buyers purchase assets to make money, and sellers generally sell to avoid losing it. Simple stuff. What we track on a daily basis is whether either of those two variables – fear or greed – gets too extreme.
We have cited this indicator before in these missives – and countless times during client conversations – but there is a public ‘Fear vs. Greed’ sentiment gauge at www.cnn.com . It looks like an old-school fuel gauge and measures from 0 to 100. When greed is high the gauge is closer to 100 and grabbing a large amount of equity exposure isn’t advised. However, when ‘Fear’ approaches single digits, history is essentially undefeated as buyers, again, typically reap large rewards over time.
At that market low 4 months ago, the Fear vs. Greed gauge hit TWO. Why are buyers rewarded in periods of massive selling? There are many reasons, but the simple answer is b/c, at some point, all the sellers get done selling. The news is terrible. People are mad. And/or scared. Then buyers show up…Optimists…People who understand history and believe capitalism works.
There are many other indicators that line up during these panics, but that Fear vs. Greed gauge is the easiest one to view, explain and understand. During our internal team meetings we often say, ‘Think like an Institution’. Expounding on that concept is a note for another time, but institutions – buyers with no time frame – LOVE the panics/pullbacks/bear markets individual investors typically loathe.
As stated above we try hard NOT to add to the noise in the financial media. However, we do have regular meetings to discuss the markets, various indicators, and arguably more importantly, we share statistics/facts/data that you’ll almost never see in the financial media. They sell fear, which you already know. We try and convey logic. And we respect market history. Examples since April:
4/25/25: The US Market experienced what is called a Zweig Breadth Thrust
5/6/25: The S&P500 had just been up six days in a row by more than 7% (over those 6 days) for the 8th time ever. The previous 7 times the S&P500 was positive 12 months later by an average of +19%.
6/17/25: Since 1950, the S&P500 has had 5 periods where it rallied at least 20% in 2 months (which had just happened). After each of those 5 previous +20% rallies, the index was higher 3mo, 6mo, and 12mo later. The average return over 12 months was +30%.
7/8/25: Future earnings estimates for the S&P500 were back to all-time highs.
8/5/25: S&P500 Companies’ capital expenditures so far this year on Artificial Intelligence (AI) enhancements alone are GREATER than YTD consumer spending in our entire country.
While the future returns mentioned above are not guaranteed, you can see there is much to be optimistic about. Markets are very, very smart. Much smarter than us humans. Markets look far ahead. Our job, to a degree, is to continue to try and keep your eye on the longer-term: outpacing inflation and achieving your financial goals.
We APPRECIATE our clients for not bailing out in April when, clearly, extreme fear and confusion were leading the headlines. The rewards since then have been solid and, over time, thanks to capitalism, we expect those rewards to continue. The Markets are undefeated over time – the next panic shouldn’t derail them for very long either.
Thank you very much. Please never hesitate to reach out with questions or concerns.
Sincerely,
Your LJI Team