Dear Reader,
Happy Monday.
You know, I spent all weekend thinking about the markets, and look, this is a tricky market. Make no mistake about it.
Anybody who tells you differently is either lying or trying to sell you something. Here’s the deal:
In January, Wall Street worried the economy was too strong, inflation was running too hot, on its way back, and the yield on the 10-year bond would soon be close to 5%.
Here we are, 8 weeks later, and now Wall Street’s worried about a recession.
Investors have just been whipsawed back and forth.
My goodness – what a difference 8 weeks makes… or 12 weeks makes.
So is the economy running too hot, or is it a recession?
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The truth is, like in so many things, probably somewhere in the middle.
Yet even talk out there about the possibility of a recession sent the S&P 500 down 10% in three weeks.
That is a very fast drop historically speaking.
It’s only happened 16 other times since the 1950s.
Now, Trump’s tariff policies make up only half the reason the market’s gotten spooked and gone down.
The other half is how he and his team have been talking about these tariff policies.
President Trump and Treasury Secretary Scott Bessent have seemed almost sanguine about the possibility of a recession.
I talk to a lot of guys on Wall Street, a lot of friends, investors who are still there that trade big money for big funds.
And this talk has freaked out a lot of them.
I tell them, look, tariffs are a game of chicken. You gotta make the other side blink first.
If I were president, I’d probably telegraph to the world that I can play chicken well, too. Just to try to put pressure on the other side.
We will see what happens in that world.
But I’ll tell you something – I’m not Zoltar the mind reader.
So I’m going to stick to my knitting and talk about the stock market for a moment…
The bad news is the speed and size of this recent drop is exceptional.
The good news is history is always our friend. It offers some clues as to what we can expect. It shows us what happens when markets drop so far, so fast.
According to research firm Bespoke Investment Group the S&P has fallen at least 7.5% just 16 times since 1953…
And each of those 16 times, the market was at least 13% higher on average a year later…
And was higher even within 6 months, by an average of 4.8%.
Now, do I know the market’s going to be higher tomorrow, next week?
I don’t know any of that. Only Zoltar knows that.
What I do know is that when you zoom out, pull the camera back, you gain some perspective. When you de-link from the radical, crazy ups and downs, it’s very helpful.
Listen – what I want you to do now is keep your cool.
It is so important not to short-circuit when markets go down.
I like to break the world into things I can control and things I can’t control.
And what happens in the market, or with Trump or tariffs – I can’t control any of that.
All I can do is control my reaction.
My reaction has to be measured, thoughtful. I don’t want to panic.
And I certainly don’t want to be “future tripping.”
When I was young and would take a big loss, I’d immediately start to imagine my new life as a homeless person.
I’d imagine which box I was going to get from the supermarket, which bridge I was going to move it under. Because the world was coming to an end.
You know what I mean?
So, no future tripping.
I broke that silly habit many years ago.
It’s a hard habit to make money with.
Anyway, I just wanted to greet you this Monday morning with a little perspective and tidings.
See you tomorrow.
“The Buck Stops Here,”
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