2025’s early-year stock correction on Wall Street will go down as one of the quickest on record.
Specifically, the “Trump correction,” as it was dubbed in some corners, was the sixth-fastest ever, having played out over just 22 days.
That’s according to Goldman’s Christian Mueller-Glissmann, who stated the obvious in a Thursday note: The proximate cause of equities’ newfound consternation was (and still is, the S&P’s nascent comeback attempt notwithstanding) a “sharp de-rating of US growth, in large part reflecting tariff uncertainty.”
The figure above, from Mueller-Glissmann, puts the correction in historical context. Simply put: We’re on a bear market trajectory, not a correction trajectory.
That’s not a prediction. And past isn’t always precedent, neither is past performance necessarily indicative of future results, but… well, markets would very much like a reprieve from all the uncertainty the new administration’s stoked in the course of “flooding the zone” since Inauguration Day. And I don’t think such a reprieve’s forthcoming.
Every day it’s something else from this White House. There’s no direct connection between a lot of what the Trump administration’s doing and stock prices, but when people have to wake up every, single morning to some new drama (earlier this week it was an escalating feud with the judicial branch, today it was a threat to shut down the Department of Education, tomorrow it’ll be something else and then on April 2 it’ll be more tariffs) it’s exhausting.
The administration and its surrogates say the tumult’s a good thing, but CEOs don’t agree, neither do consumers, nor homebuilders, nor fund managers. As it turns out, chaos is chaotic. Who knew?! Not enough people in early November, apparently.
Anyway, the good news for stock bulls is that corrections within bull markets — i.e., pullbacks of 10% or more than don’t morph into full-blown bears — aren’t unusual. As Mueller-Glissmann went on to note, there were 30, including 2025’s, going back to 1929, and only 16 bear markets.
That said, Goldman’s risk appetite indicator isn’t anywhere near levels typically associated with contrarian buy opportunities or, as Mueller-Glissmann would put it, not subdued enough to suggest a decisively bullish return asymmetry going forward.
Note the red marker: That gives you some context for how depressed market participants were on August 5, when a perfect storm (the culmination of a multi-week JPY carry unwind, a US growth scare and an impaired VIX complex) triggered a mini-panic.
“Usually an RAI level near or below -2 indicates a better opportunity to ‘buy the dip’ (or at least stop being bearish),” Mueller-Glissmann wrote. By contrast, the RAI’s current level (represented in the chart by the orange marker) isn’t suggestive of a particularly compelling entry point.
Oh, and while editorializing around the speed of the 2025 correction, Mueller-Glissmann said the rapidity of the selloff “might be due to a stronger performance into the peak, which often tends to be the case ahead of bear markets.”
I’m having a very difficult time staying invested. I know it is cliche to say this time is different, but this time does feel different for one orange, obvious reason. I’d rather miss out on some upside to protect my capital than leave it exposed to the whims of a lunatic and his enablers.
Generally speaking, it’s not a good idea to be uninvested. The odds of a GFC-style drawdown are vanishingly small, particularly in the era of the CB put. (Caveat: Not investment advice. Caveat 2: Trump’s dangerous.)
I needed to hear this, thank you. It’s hard these days to draw a reasonable line between valid concern and irrational despair. It’s more difficult to separate my fear for our democracy from that of my own personal finances, or to look ahead with hope that things will get better somehow because, as a friend of mine used to say, it’s darkest right before it goes totally black.
@Mountain Economist. At the risk of stating the obvious, you could consider moving a meaningful portion to cash earning 4%. With the remainder, spread it across the portfolio allocation with which you are comfortable. There is nothing wrong with an over-allocation to cash at 4% risk-free until you feel more comfortable. So many variables here that only you personally know (age, risk tolerance, net worth, how soon you will need the money, etc.). “Never risk what you need for something that you’d like to have.” -W. Buffett.
Your “CB put” comment caused me to re-read your 2020 article, “Where Were You When the World Didn’t End?”, and focus on Kocic’s 2017 chart and comments (included in H’s piece). Thoughts on current market conditions relative to the upper right (“flirting with disaster”) and lower right (“forced deleveraging”) quadrants of Kocic’s chart? Thanks.
I still love that piece. It was a forerunner to the Monthly Letters. For the super-fans among you, the opening vignette from “Where Were You When the World Didn’t End?” can be placed between the closing vignette from “Sinners And Saviors” and the vignettes from “Charon’s Obol” chronologically.
For what its worth, my portfolios are more defensively positioned than any time since 4Q21. Equity is not zero, but is heavily skewed away from Mag7.
My wife enjoyed visiting the Washington DC museums last weekend. Today I got a NYTimes alert that DOGE is looking to shutter the museums by defunding and firing archivists, curators and librarians. A major target of P2025 is to destroy humanism and all its evils. Maybe they will sell-off all the degenerate art in a national debt reducing auction catering to the very few elite citizens of Wealthistan to never be seen in public again. Wealthistan’s President, Musk is untroubled destroying such degeneracy making way for a Great White Hope to come. The US has been conquered by a foreign country. Borderless, tax-dodging Wealthistan.
Denial. As you described it cogently and explicitly in last week’s Weekly. In Nov, people knew “chaos is chaotic,” they just delusionally believed the guy who had tried to overthrow the government and recommended bleach enemas to cure covid would bring an everlasting state of calm prosperity to the US. Deep delusional denial by many supposedly “smart” people.
Trump pump, Trump bump, Trump dump, Trump slump.