Volachillity 2025: When You Overdo It, Undo It

“Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”

– Benjamin Graham

April 26, 2025

On April 6th, I wrote, “However the next few days unfold, the markets are oversold short-term, and I’d expect to see a strong bounce soon, even if it proves temporary.” Right on cue, on April 9th, the S&P 500 and NASDAQ catapulted 9.5% and 12.2% higher, respectively. This was the third-biggest one-day gain for the S&P since 1950. Maybe I’ve been underselling my short-term prediction skills...  We’ve been in a bipolar band since then, with the market dropping one day over tariff worries and concerns about the definition of “astronaut” and rising the next on signs of tariff progress and reports that Gwyneth Paltrow has started eating carbs again.

I also wrote in my last piece, “Remember, the strongest market days tend to come during bear markets.”  Big moves higher after nausea-inducing declines are the Pepto-Bismol of bear markets. They make you feel better, at least temporarily, even though the source of the indigestion and distress may still linger.

From the high on February 19th to the low of April 8th, the S&P 500 dropped just a hair over 20% at its worst, the technical threshold for a bear market. This bear lasted all of one day so far, as the April 9th rally erased half the decline. So, was that it? Are we escaping with just “The Shortest Bear Market in History”? As usual, some prognosticators are yammering on about impending doom while other entrail-reading, amateur, boat owners wax eloquently about clear skies, calmer waters, and smooth sailing. It’s important to note, however, that not a single one predicted Gwyneth’s dietary change.

I try my best to ignore the punditry and their short-term views of what wiggle may come next in the markets. These people are more storytellers than thoughtful investors. If we find enough compelling investments to consume our cash without being overly concentrated in too few ideas, we’ll happily be fully invested. If we can’t, we’ll have a larger pile of cash and contentedly earn our Treasury and money market yield while we wait for better opportunities. We prefer the Antiques Roadshow approach to the Hoarders style of investing.

Whether it occurs or not, the potential for a serious decline certainly exists. Much of the buying in recent years has been automatic, reflexive, passive, trend-following, and momentum-chasing in nature. Valuation isn’t a relevant factor in these investment styles. In a serious bear market, however, investors eventually begin to worry about when the value-conscious investors (like us) will step in, buy, and support the market. I can tell you that a good deal on the overall market for me would be at prices about 40%+ below current levels. There is a tremendous gap between those levels and today’s level, and there aren’t many natural buyers in that gap. This isn’t a prediction, just an important point about bear markets to keep in mind.

My Precious

The stars of the markets this year have been gold, silver, and precious metals mining stocks. The stock market peaked on February 19th and is still down 10% since then, even after the face-ripping rally on April 9th. In contrast, gold is up 13% over the same period while GDX, an ETF that tracks larger precious metal mining stocks, is up 18%. Year-to-date, gold is up 27%, and GDX is up 44%. Our patience with these names has been paying off. Interestingly, gold has now outperformed the S&P 500 over the last 20 years.

We built up our precious metals exposure over the last couple of years to the point at which our aggressive accounts had 25−35% of their portfolios invested in the space, a very significant position. Less aggressive accounts had a smaller yet still substantial exposure. We’ve been lightening up as these names have rallied and have reduced our exposure by about a third so far. We reduced our gold holdings more than silver, leaving us with more exposure to the price of silver currently. Silver is up 14% for the year, but it’s trading at one of its largest discounts to gold in many years.

I remain optimistic about gold and silver. We’ve owned them for over 20 years as a hedge against fiscal and monetary mismanagement, both of which I’ve been yammering on about over my bowl of entrails (but long-term, value-oriented entrails) for, well, 20+ years. Unless this mismanagement changes, we’ll continue to own precious metals, but we will tactically reduce our exposure following large rallies, add after big pullbacks, and periodically shift the balance between the metals and the equities as well as between gold and silver as their relative attractiveness changes.

Tariff Update

There’s plenty of debate about who is harmed most by the current uncertainty and threats of higher tariffs, but the reality is that it’s in everyone’s best interest to get this resolved quickly and fairly. Trump has the reality of mid-term elections restricting his patience, while most of our trading partners face the simple fact that they sell more to us than they buy. Any drop in trade will hurt them and their less robust economies much more than us. The most likely outcome is a trade regime that is more favorable for the U.S. but not punitive to our trade partners. The process probably won’t be smooth. There will likely be some surprises. Politics and posturing may guide rhetoric in the short-term, but politics and practical economic realities will ultimately carry the day. Probably.

Trade and tariffs are just one part of the new focus on statecraft. In the months and years ahead, we may be redefining our trade and defense alliances, shifting our trade and budget deficits, reemphasizing domestic industrial policy, and potentially adopting a new monetary system. However this all shakes out, the process involves plenty of uncertainty, and markets don’t particularly like uncertainty, especially when hovering at lofty valuation extremes.

The Long and Short of It

We went into this latest market downturn with our largest cash position in several years, thanks to excessive market valuation and attractive short-term Treasury and money market yields. The market meltdown was welcome, and I hoped for things to “get ugly in the near-term.”  So far, the pullback was sharp but brief, so we were able to do some select buying but no binge shopping. We were adding equities right up to the very hour of the April 9th rebound. On that day, I was buying an energy stock and noticed the offering price ticking steadily higher. The April 9th rebound was just beginning.

Prior to the sharp rebound, we were able to add to some of our favorite uranium names as they’ve undergone their semi-regular trip behind the woodhouse. We also added to some core oil/gas names and added a few new energy positions, including a new nine-month and three-year corporate energy bond in conservative accounts. Interestingly, we also sold a few energy names as they resisted the pullback and were trading near their highs and our target prices. We pared back our precious metals exposure as those names rallied. The net of this activity is that our cash levels are still robust and little changed from when the pullback began. It’s a comfortable place to be with a still overvalued market, uncertain economic outlook, and continued policy uncertainty. If markets continue to rebound, we’ll benefit. If this is a head fake and Paltrow starts dropping carbs, we have the cash to take advantage of it.

Best, 

Ken Bell, CFA, MBA, Carb-Lover

Aspera Financial, LLC

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.