17 Mar 17th March 2025
Index Movement Last Week
| S&P500 | -2.3% |
| Nasdaq | -2.5% |
| Aussie ASX200 | -2.0% |
The stock market has sunk near a six-month low as concerns over slowing economic growth and fear of how tariffs could impact the outlook have shaken investor confidence.
Does anyone know where we are with tariffs? I’ve lost track. Every day seems to bring a new one, or a retailiation or a wind back. This uncertainty makes it difficult for businesses to plan and budget. It also makes it difficult for economists to make projections about the economy.
So it is no surprise the fast money traders are reducing positions. We have now entered correction territory with the S&P500 down 8% and the Nasdaq down 11%.
The question now is, are we at the start of a bear market or is this just a correction that will be over soon?
A number of measures tell me this is just a correction.
- Sentiment – The AAII Sentiment Survey has recorded among the lowest bullish sentiment and highest bearish sentiment readings in its history. (Historically, the S&P 500 has often realised above-average six-month returns following such readings.)
- Media are focussing on plunging stock markets (more on this below)
- VIX went over 27 on Monday last week (that is one of my buy triggers) but has been falling since.
- Bond markets are not pricing in any risk of recession.
The fact is, the US economy benefits from several tailwinds, including strong productivity growth, high employment, rising wages, rising corporate margins and declining inflation.
And remember, if the economy were to slow, the Fed would lower rates to encourage growth. They have a lot of levers to pull because the strong economy for the past few years has put them in a good position to manage a slowdown. Indeed, up until March, all the talk was about how the Fed can SLOW the economy down to manage inflation, far from the present concerns over slowing too fast.
Even after this correction, US stocks are still trading on a PE of 20. That is above the long term average of 19. It means smart money is saying there is nothing structurally wrong. Current prices reflect a high degree of investor confidence in both earnings growth and the belief the US track record of economic growth and innovation is unparalleled over the last 20 years.
That being said, this correction has made stocks start to look very attractive indeed.
Be that as it may, another way of interpreting the current market action is that the market is telling policy makers it is not happy with how they are running things. And until we get some clarity/stability on this, the volatility is likely to continue
Your Essential Buy List
Wish you had bought your favourite stocks when they were cheap in the middle of last year? Well now you have second chance. Prices are looking very attractive here, when you compare price to this years earnings
- NVida at 25.7 times
- Alphabet (Google) at 19.2 times
- Amazon at 29.6 times
- Microsoft at 25.6 times
- Salesforce at 25.5 times
- Trade Desk at 30.3 times
I could go on and on.
The message is – stock prices are cheap so go out and buy something.
I’m becoming increasingly impressed with Salesforce and how they are already taking advantage of AI to reduce staff and costs. Looks cheap here and a good opportunity to pick up a parcel.
Media Headlines
Headlines and magazine covers are often used as a contrarian indicator. Rarely does the economy or stock market make the front page, so when it does, it is a significant event.
For example, this is from the New York Post on Tuesday of last week
It becomes a contrarian indictor because it shows you investor sentiment and that is usually wrong.
It’s not that the New York Post is bad at picking the best time to buy stocks. That isn’t what they do. They are in the business of selling magazines. Not trading stocks. And they are very good at selling magazines.
They don’t think “what advice should I give to stock traders today?” They ask the question “what headline can I print that will sell the most copies?”
They are very good at reading consumers sentiment and know what is top of mind. So they just make up headlines around that topic.
Even financial publishers like Bloomberg, Reuters or the News is the same. They are no predicting anything. They are just trying to get eyeballs on their product.
Same for all those YouTube experts. They don’t make money from you becoming an expert trader. They make money from you watching their videos. They don’t care if what they teach you is even correct. It just has to be popular and get a lot of views for them to make money.
Two points to takeway from this:
- These guys are very good at reading consumer sentiment and sentiment is nearly always wrong. So pay attention to headlines and magazine covers – then do the opposite
- Understand what their goal is and stop listening to them like they are giving you the world’s best advice.
Tariffs
This is a follow-on from last week’s story about the chicken tax.
Tariffs can produce short-term benefits for a country. But it nearly always causes long-term problems.
Initially the tariff makes the home grown product more affordable and the industry is supported, at the expense of the foreign product which loses sales.
But the long-term impact is the home grown product becomes lazy and stops innovating because they are protected by the tariffs. The foreign company is forced to think about how they can compete even with tariffs in place. They innovate and find novel new inventions.
We saw it happen recently with AI. The Biden administration banned sales of Nvidia’s best chips to China to protect American AI. So China had to adapt to using older, less powerful chips and found a way to do it with DeepSeek. If China had not been forced into that situation, then DeepSeek would probably have never been invented.
“Necessity is the mother of all invention”
This Week
Expect more volatility this week as the market continues to try and assess the ever changing tariff and economic situation.
Use down days to buy your favourites and enjoy the low prices.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.