- “Wall Street’s crystal ball is cracked”…
- Why the stock market’s off to such a rough start this year…
- EXPOSED: An obscure tax loophole that could boost your bottom line by $625 a month…
Dear Reader,
“Wall Street’s crystal ball is cracked,” claims Mr. Stephen McBride — he of research firm Risk Hedge.
Here he cites Wall Street’s recent string of botched crystal gazings:
- 2022: Wall Street predicted stocks would rise 5%. Stocks crashed 18%.
- 2023: For the first time ever, it predicted stocks would fall. Instead, the S&P 500 soared 26%.
- 2024: It aimed way too low again, forecasting the S&P 500 would hit 4,860. The market blew past that by over 20%.
- Now, for 2025, Wall Street has done a complete U-turn. Every major firm — yes, every single one — predicts stocks will rise. Not a single down-year forecast in sight.
Wrong!!!
The Standard and Poor’s 500 has gone 4.5% backward year to date.
The Dow Jones Industrial Average, 1.5% backward.
The Nasdaq Composite, 9.5% backward.
The same Nasdaq Composite was in swift retreat yesterday — 4% backward.
Thus my deep and abiding distrust of “consensus.”
As a somewhat aloof and disagreeable fellow… I prefer to graze against the grain of consensus.
By instinct I avoid locations where the crowd is thick.
If the crowd is loaded onto a boat’s starboard side, I jump instinctively to port — and vice versa.
And if the crowd jumps into stocks, I jump out of stocks.
If the same crowd piles into bonds? Then I pile out of bonds.
A Long Way to Go
It is true, the year is youthful. It is merely March.
And the stock market may well conclude the year in the color green.
Will it? More on that topic anon.
Yet to date the Wall Street consensus reduces to a sad, sad jest.
The above said McBride stood by his lonesome own… and defied consensus.
Why was he so confident the stock market would commence 2025 in such sour humor?
The answer is the four-year presidential cycle.
History Predicted 2025’s Slow Start
2025 is the initial year of the Trump reign.
And a substantial history reveals that Wall Street wallows in the opening quarter of the initial year of presidential terms.
Mr. McBride:
- The first quarter of year 1 of a presidential cycle is typically rocky… On average, stocks gain just 0.1% during the first three months of a new president’s term.
Here is the graphic evidence, stretching to 1950:
Source: Carson Investment Research, Risk Hedge
It’s Not Voodoo
Yet why do freshly installed presidents send stocks scurrying under the bed?
- This isn’t voodoo; it’s markets and investors adjusting to a new set of policies. The selloff we’re experiencing right now shouldn’t be a surprise.
Just so. Yet what about the remainder of the year? Will stocks spend the entirety of 2025 cowering beneath the bed?
No — not necessarily:
- The volatility we’re seeing right now is healthy. I’d argue it would be worse if stocks jumped 20%+ again this year. That would put us in bubble territory and likely set up a big crash somewhere down the line.
- Coming into the year, the S&P 500’s valuation was at the highest levels we’ve seen since June 2000. We needed to cool off, and that’s exactly what we’re seeing.
- Going back to 1980, stocks typically experience a 14% intra-year drop. In other words, this selloff could get a little worse and still be perfectly normal.
Meantime, the above chart reveals that stocks returned 3% — on average — in the second quarter of presidential term year one.
Thus stocks may return to vigor in the year’s second quarter and beyond.
I simply do not know.
Sentiment Has Swung to “Extreme Fear”
Yet I note that investor sentiment has swung to “Extreme Fear,” as gauged by CNN’s Fear & Greed Index.
Not merely “Fear,” that is — “Extreme Fear.”
As recently as November investor sentiment registered “Greed.”
From my perspective the glass is nearly always half-empty of water. It is rarely half-full of water.
I perceive not silver linings but the gray clouds they tinge.
Yet recall my deep distrust of crowds. I believe it is a well-merited distrust.
And presently the crowd is extremely fearful.
I must therefore conclude that extreme greed is presently warranted… and in full.
It is time to wager high on stocks — despite my congenital pessimism.
The Courage of My Convictions
I must maintain a consistent posture. That is, I must maintain the courage of my convictions, such as they are.
And to maintain them I must throw in with the optimists among us… however temporarily… and despite any natural misgivings.
That is strictly because the crowd is against them. And I am against the crowd. Thus I am with them.
Yet I console myself with assurances that it will prove a fleeting alliance.
Investor sentiment will assuredly rotate to “Greed” then “Extreme Greed” within a reasonable time frame.
I can then return to my default settings. I can then return to the state of “Extreme Fear” to which I am happily accustomed.
In the interim, I must take aboard Mr. Buffett’s famous counsel:
“Be fearful when others are greedy and greedy when others are fearful.”
Only then can I claim to be the defiant contrarian braveheart I imagine myself to be.
I do not know if I can do it.
Thus I beg the Lord for strength…
Brian Maher
for Freedom Financial News
