Volachillity 2025: Take My Hand

“Nothing, I learned, brings you into the present quite like holding hands. The past seemed irrelevant; the future, unnecessary.”  ― Catherine Lowell, The Madwoman Upstairs

March 20, 2025

The markets have spiced up a bit since mid-February with the S&P 500 touching correction levels last week, down 10% from all-time highs while the NASDAQ was down 12%. The financial media was awash with articles about the “Stock Market Crash” and “Plunging Markets.” A stubbed toe was being confused for a disembowelment. My IQ suffers a correction every time I see such ridiculous headlines.  We haven’t seen anything close to a crash or plunge in recent weeks. Make no mistake, there will be another actual crash or plunge at some point, but 10% ain’t it.

Despite this pretty normal correction so far, the S&P 500 and NASDAQ remain exceptionally expensive on a historical basis. A further 40% drop from these levels would merely take us back to where we were just before Covid hit at the end of 2019. It would take an even steeper drop to return us to long-term historical average valuation levels. This isn’t a prediction, just a note of caution.

It’s been a while since a correction blossomed into a full-blown bear market, and for that we can thank massive stimulus from the Federal Reserve, large and sustained Federal deficits, additional Treasury stimulus, expanding profit margins, the growing influence of passive investing, and an increasing willingness of investors to pay ever more for a dollar of future corporate profits.  It’s important to be mindful of these market supports, but let’s not forget that tailwinds can become headwinds. Market corrections are usually just hiccups that reverse and head back toward the highs, but occasionally they’re simply the first of many 10% drops. This isn’t a prediction, just a note of caution.

The T Word 

|WARNING|: A brief discussion of Trump’s policies follows. I am not interested in opinions about the man’s morality. If you hold modern Presidents or members of Congress up as shining example of ethics and morality, you may be a sociopath. My concern is only with policy − the likelihood that policies will be enacted and the impact those policies might have on our investments. So, grab a weighted blanket if necessary. This will be quick. 

It's safe to say that some of the recent market jitteriness can be attributed to the barrage of policies and statements coming from the White House (see the charts below). The dismissal of tens of thousands of federal employees and any success in reducing the deficit will pressure employment and GDP in the near-term. Tariff uncertainty could lead to a corporate investment pause. Treasury Secretary Bessent and Trump have referred to a “detox” period and a “period of transition” ahead, and they’ve indicated that they’re not concerned about short-term stock market moves. This all translates into increased uncertainty at a time when market valuation is near all-time highs.

There are plenty of questions surrounding U.S. policy. How serious is Trump about using tariffs to raise money versus using them as a negotiating tool to achieve other goals? How much can the administration push through without the Democrats? How much will be slowed or stopped through the judiciary? How will the Federal Reserve respond? Are Republicans serious about reducing the deficit given their recent punt on the budget? Will Trump be able to push through income tax reform? Is he preparing for war against Iran or are we seeing more bluster and threats to get what he wants? IF Trump and his team can ultimately eliminate a large degree of fraud and waste, reduce or eliminate the deficit, restore peace, “encourage” companies to build in America once again, reduce burdensome regulation, keep inflation in check, and reduce income taxes, well…that’s the type of system I’d want to invest in.  If we can get a healthy drop in the markets during this “detox” period, all the better. Lots of ifs.

I want to stress that our investment decisions are not based on guesses as to policy success or economic growth. I’m much more interested in investments that can withstand a variety of policy regimes or compelling opportunities created by policy uncertainty. We have plenty of cash currently, so I’m all for increased volatility, confusion, and fear with even a whiff of crash or plunge.

The Not-So-Magnificent 7

Although the overall market remains in nosebleed territory, it’s largely been driven by the Magnificent 7 - Nvidia, Apple, Microsoft, Meta (Facebook), Alphabet (Google), Tesla, Amazon. As ever more passive money (think people buying index funds and ETFs) has poured into the market, fund managers keep funneling more dollars into these few names. It’s self-reinforcing on the way up, but this also works in reverse should investors begin to pull funds from indexed products. This isn’t a prediction, just a note of caution.

Beyond the Mag 7, some pockets of the market are much more reasonably valued.  This is our playground. Nevertheless, these attractive and inexpensive stocks will get punished should this latest correction accelerate. In a panic, investors sell just about everything except dollars and Treasuries. Even gold, a safe haven, tends to drop during panics as investors rush to raise cash. Some of our favorite names are small stocks that can get disproportionately punished during a sell-off, even if their businesses are completely unaffected. We have a mild addiction to buying more shares when this happens, and we’ve done just that with some favorites recently.

The Long and The Short of It

As highlighted in my “It’s Not the Grand Can’tyon” piece, a key part of our strategy is tactical trading around core positions. We’ve been exceptionally tactical in recent weeks, paring back exposure to precious metals as gold has run to all-time highs while taking advantage of the weakness in the uranium and oil space to boost our favorite names and add a few new stocks.

Gold recently hit an all-time high of over $3,050 an ounce. Fortunately, our precious metals holdings have been one of our largest positions, with some aggressive accounts having a third of their portfolio allocated to the space. We’ve reduced our exposure following this latest rally, selling a few of our long-term core precious metals mining stocks at prices 100-250% higher than where we last purchased them between late 2022 and early 2024. We also slightly pared back our core ETF holdings as well as our direct exposure to the price of gold and silver. Precious metals remain a significant position for us, and I anticipate continuing to lighten up should the rally continue.

I remain very bullish on uranium over the next several years, even more so following its latest pullback. It’s a terrific candidate for tactical trading as these names can move 25-50% up and down in no time at all. We've experienced these moves before, consistently selling after rallies and buying after pullbacks. The uranium story continues to get stronger with every passing month as the disconnect between supply and demand grows. These names have been in pullback mode recently, so we’ve been buyers. I again expect substantial gains from these recent purchases.

Despite all the talk of recession, “drill, baby drill,” and OPEC starting to unwind their production cuts, I remain positive on the oil and gas sector over the next few years. Managements are still being disciplined with their cash flow, I don’t see OPEC starting a price war, and I have concerns about shale oil growth slowing. A recession could certainly pressure oil prices and stocks lower, but it would also further impede supply growth, setting the stage for a strong rebound. Although oil prices are hovering near the lower bound of their 3-year price channel, the price of natural gas is up strongly. We pared back exposure to oil/gas during the last big rally, and we’re once again selectively adding to this space on weakness.

Due to our precious metals selling, our cash levels now stand at the highest level in the past few years. Our cash has primarily been invested in money market funds. We also laddered Treasuries out a couple of years in more conservative accounts. We paused this laddering over the past year as yields came back down but have recently added a couple more rungs to the ladder since I currently see money market yields as more likely to fall than rise from recent levels. We’ve been quiet on the corporate bond front as corporate yields just weren’t high enough to compensate us for the risk. That may be starting to change, with yield spreads widening a bit, and we added our first new corporate bond just this week in some accounts. I’d expect to boost yield with more corporate bonds if yield spreads keep widening. Fortunately, we’re still getting about 4% in money market, so we’re getting paid decently to wait for fatter pitches. We’ll see more and fatter pitches if the recent market correction accelerates, so don’t worry if things do in fact get ugly in the near-term. I’m hoping for it.

This isn’t a prediction, just a note of caution.

Best,

Ken Bell, CFA, MBA, Trigger Warning Writer

Aspera Financial, LLC

ken@asperafinancial.com

The Market Rubbernecker is associated with Aspera Financial, LLC, an investment management and financial planning firm based in the Cary, Raleigh, and Durham area of North Carolina. This and all Market Rubbernecker missives and musings (written, oral, or mimed) are subject to the disclaimers, disavowals, and hindquarter-coverings found at www.asperafinancial.com/aboutrubbernecker.