Tariff tremors rattling the markets. Thursday morning the market opened with promise. Nvidia, the 800-pound gorilla that has become the bellwether for all things AI, had posted earnings the night before, exceeding fourth-quarter estimates on the top and bottom lines and issuing strong guidance. Commentary ranged from “a blowout” to “a nothingburger.” Either way, investors exhaled. The stock was up 2% and change.
Then, in a post on Truth Social, the President announced that tariffs of 25% on Mexico and Canada, which had been on hold for a month (and that many thought would disappear), will take effect on March 4. Trump also said that China would face an additional 10% levy on top of 10% tariffs already in place.
And away goes the promise. Nvidia would close down 8.5% for the day with the rest of the market in hot pursuit.
Then, in a post on Truth Social, the President announced that tariffs of 25% on Mexico and Canada, which had been on hold for a month (and that many thought would disappear), will take effect on March 4. Trump also said that China would face an additional 10% levy on top of 10% tariffs already in place.
And away goes the promise. Nvidia would close down 8.5% for the day with the rest of the market in hot pursuit.
Jittery Market
“Nvidia earnings were outstanding, but they come during an extremely jittery stock market,” said James Demmert, chief investment officer at Main Street Research.
Jittery, indeed. Besides Trump’s tariff declarations, a jump in jobless claims coming on the back of several other recent economic reports — including disappointing retail sales numbers — have rattled stocks and raised worries about the health of the U.S. economy.
Drilling down, the mood of the consumer, who props up 70% of U.S. GDP, dimmed considerably in February, according to the consumer confidence index, which registered its steepest monthly drop since August 2021. Rising consumer uncertainties suggest Americans are growing anxious about the potential negative economic impact of the policies of the new administration.
"Headlines have been pretty dramatic,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “As a result, consumers and maybe businesses are sitting on their hands to see how things shake out before making major purchasing decisions or other business decisions."
For the month, all three major averages are on pace to finish lower with the tech-heavy Nasdaq giving up 5.5% as of this writing.
How Is March Looking?
Depends on who you ask.
Tom Lee, Head of Research at Fundstrat Global, makes the bull case. “We expect investors to buy the dip. We believe this should be the key takeaway this week. And secondarily, that the market participation is broadening beyond the MAG-7,” Lee added.
Jeff Cox, Economics Editor for CNBC.com, notes the “January Barometer” that says a strong first five trading days of the year portends gains ahead holding up.
And the bear case? A new survey of the 170,000-member American Association of Individual Investors finds that more than 60% now hold bearish views for the week ending this past Wednesday. That marks only the sixth time it has come in that high since 1987.
So, should the AAII survey trump Tom Lee? Not necessarily. The Bespoke Investment Group analyzes such data. They found the S&P 500 has jumped more than 30% in the typical year after an AAII bearish reading comes in above 60%.
Adding to the confusion, Citi’s weekly Panic/Euphoria model shows investors in “euphoria” territory. On the other side of the spectrum, CNN’s Fear and Greed Index slid into “extreme fear” after sitting in the “neutral” zone just one week ago.
“This is the most conflicted group of measures that I’ve seen,” said Peter Boockvar, Investing Chief at Bleakley Financial Group. “I honestly don’t know what to make of it.”
Here’s what I make of it: March is unknowable. Some speculate there is a Trump Put – that the President views the stock market as a barometer of his presidency, and that he won’t let it slide too much (e.g., he’ll back off the tariff talk if things get bad). But that’s untested, and others fear the genie may be out of the bottle.
The strategies appear to be leaning into safety, if the provisional picks are any indication. As per usual, I’m all in.
And For What It’s Worth…
A petition has been launched in Denmark to buy the state of California after Donald Trump said he wanted to take over Greenland (Greenland is an autonomous territory within the Kingdom of Denmark).
At last check, the plan (lighthearted, we hope) has garnered 268,000 Danish signatures, with a crowdfunding goal of $1 trillion – believing that amount should sufficiently entice Trump to sell the place he has called “the most ruined state in the union.”
If successful, California becomes New Denmark. Disneyland becomes Hans Christian Andersenland. The Danes promise to bring hygge to Hollywood, bike lanes to Beverly Hills, and organic smørrebrød to every street corner. Not to mention universal healthcare.
And they all lived happily ever after.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
“Nvidia earnings were outstanding, but they come during an extremely jittery stock market,” said James Demmert, chief investment officer at Main Street Research.
Jittery, indeed. Besides Trump’s tariff declarations, a jump in jobless claims coming on the back of several other recent economic reports — including disappointing retail sales numbers — have rattled stocks and raised worries about the health of the U.S. economy.
Drilling down, the mood of the consumer, who props up 70% of U.S. GDP, dimmed considerably in February, according to the consumer confidence index, which registered its steepest monthly drop since August 2021. Rising consumer uncertainties suggest Americans are growing anxious about the potential negative economic impact of the policies of the new administration.
"Headlines have been pretty dramatic,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “As a result, consumers and maybe businesses are sitting on their hands to see how things shake out before making major purchasing decisions or other business decisions."
For the month, all three major averages are on pace to finish lower with the tech-heavy Nasdaq giving up 5.5% as of this writing.
How Is March Looking?
Depends on who you ask.
Tom Lee, Head of Research at Fundstrat Global, makes the bull case. “We expect investors to buy the dip. We believe this should be the key takeaway this week. And secondarily, that the market participation is broadening beyond the MAG-7,” Lee added.
Jeff Cox, Economics Editor for CNBC.com, notes the “January Barometer” that says a strong first five trading days of the year portends gains ahead holding up.
And the bear case? A new survey of the 170,000-member American Association of Individual Investors finds that more than 60% now hold bearish views for the week ending this past Wednesday. That marks only the sixth time it has come in that high since 1987.
So, should the AAII survey trump Tom Lee? Not necessarily. The Bespoke Investment Group analyzes such data. They found the S&P 500 has jumped more than 30% in the typical year after an AAII bearish reading comes in above 60%.
Adding to the confusion, Citi’s weekly Panic/Euphoria model shows investors in “euphoria” territory. On the other side of the spectrum, CNN’s Fear and Greed Index slid into “extreme fear” after sitting in the “neutral” zone just one week ago.
“This is the most conflicted group of measures that I’ve seen,” said Peter Boockvar, Investing Chief at Bleakley Financial Group. “I honestly don’t know what to make of it.”
Here’s what I make of it: March is unknowable. Some speculate there is a Trump Put – that the President views the stock market as a barometer of his presidency, and that he won’t let it slide too much (e.g., he’ll back off the tariff talk if things get bad). But that’s untested, and others fear the genie may be out of the bottle.
The strategies appear to be leaning into safety, if the provisional picks are any indication. As per usual, I’m all in.
And For What It’s Worth…
A petition has been launched in Denmark to buy the state of California after Donald Trump said he wanted to take over Greenland (Greenland is an autonomous territory within the Kingdom of Denmark).
At last check, the plan (lighthearted, we hope) has garnered 268,000 Danish signatures, with a crowdfunding goal of $1 trillion – believing that amount should sufficiently entice Trump to sell the place he has called “the most ruined state in the union.”
If successful, California becomes New Denmark. Disneyland becomes Hans Christian Andersenland. The Danes promise to bring hygge to Hollywood, bike lanes to Beverly Hills, and organic smørrebrød to every street corner. Not to mention universal healthcare.
And they all lived happily ever after.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
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