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In my first incarnation, when I was in practice and steadily seeing patients, I would do an exam and then give a report of my findings, attempting to make sense out of the presenting chaos & confusion, backing up everything that I reported with proof. It was the “proof” that allowed patients to understand that I knew what I was doing and to trust me. And it is proof that I am constantly searching for as I attempt to make sense out of the current market chaos & confusion.
[There is a PDF & print function at the bottom of this blog, on the website.]
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The stock market hates one thing and one thing only: chaos & confusion
For better or worse, we suddenly live in a world of chaos & confusion, all created by the daily changing whims of one man that wants to ‘dictate’ even the tiniest detail.
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This first chart shows the global level of economic chaos & confusion. (Chart courtesy of the conservative Bloomberg Economic Research)
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This next chart below comes from the highly respected conservative publication, The Economist. This is the #1 publication used by hedge funds in their decision making. The chart shows President Trump’s approval rating on the economy. I have gone for the past two decades without being the least bit political in my writings, but now politics is the thing that I have to deal with on a daily basis. My first thought upon awakening each morning is: “What bad thing happened while I was sleeping?”
The first three months; Trump’s approval rating on the economy. (Chart via The Economist):
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Let’s first look at what the market environment would be like if things were normal.
Earnings are good. Jobs are good. Taxes are low. The Fed wants to be accommodative. Inflation is low (although now rising again because of tariffs). Margin has not been called in and margin is still being used at surprisingly low levels. Markets are very oversold on a daily and weekly basis. New lows on the NYA are now bullish. The VIX is now giving a bullish signal. MarketCycle’s proprietary “short-term-buy” indicators have now triggered “bullish.” We are still in a secular bull market and despite the recent hit (explained below) the United States is still the powerhouse of the globe.
We were due for a stock market pullback because of overbought conditions and we got that right on cue in February and early March of this year. The (S&P-500) stock market was correcting and then bottoming perfectly at 5500, and the pullback was over and done with.
But then: Donald Trump spoke in early April… and the world came unglued and it fell apart.
Surprisingly, 90% of Trump voters do not have brokerage accounts, so they have not yet been hurt by Trump’s actions. Only 10% have brokerage accounts, although they are giant portfolios, and these people have easy access to him, even if they have to buy it.
Immediately after “Liberation Day,” the market began to fall. A better name may be “Obliteration Day” because $10-Trillion was wiped out in the global stock market in just 2 days. This is what $10-Trillion looks like: $10,000,000,000,000. That’s a lot of digits. Almost nobody imagined the ridiculously high level of tariffs that would be rolled out… IE, 47% on Vietnam. This massive two-day drop was caused by fear, but also because the entire world, which mostly owns U.S. stocks, immediately SOLD all of their U.S. assets, bonds and stocks and currencies… and they moved everything back home.
Trump’s tariffs = U.S. down and everyone else up. It is like telling everyone to take their money out of the U.S. and to just leave. The entire planet is angry at the entire United States. A friend that recently flew to the U.S. from Europe, on a normally crowded airplane, was the only person on the plane. Nobody wants to come here. Visitors are now being stopped and even detained at the airport.
U.S. exceptionalism in the markets ended in an instant, with one proclamation. Nobody wanted to own our stocks, so they fell sharply. Nobody wanted our bonds (which means that nobody wanted to loan us money) so they fell sharply. Nobody wanted to hold the U.S. Dollar, so it fell sharply. Normally if bonds go down then the Dollar goes up, but not this time because both fell in unison. This is a unique and temporary phenomenon, it won’t last, but it was strong initially and it indicates that nobody on the planet currently wants to deal with this new and profound chaos & confusion.
So, after “Liberation Day,” U.S. markets went down and almost crashed… but Trump flinched, as I knew he would, and he backed off of his doomsday plan. He has now seen that breaking things simply for the sake of breaking things is often a mistake. My wish is that he will somehow remember that he almost crashed the markets. He seems to anchor to certain beliefs and then he tries desperately to confirm his beliefs rather than challenging them. That is a big mistake and we are the ones that would have to pay the price. We’ll literally pay the price because Trump’s tariffs and Trump’s need to force lower interest rates would result in sky high prices for every single thing that we all ‘consume.’ If implemented, these high tariffs would literally be the biggest tax hike in history and it would be placed almost entirely on the shoulders of hard-working Americans, rather than on the rich. Tariffs are a regressive tax.
But somehow I hold the opinion that Trump will back off even further and we’ll all be saved from obliteration. He’ll find some way to “save face” by saying that he “won” and that he got “great things never seen before” out of his “art of the deal.” And then he’ll take credit for the stock market jumping higher again. If he backs off and only sets tariffs at a general 10% level, and if he doesn’t find a way to fire Jerome Powell from heading the Federal Reserve, then the stock market may immediately leap higher and investors will have to be already invested in the markets in order to receive that profit.
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So, back to the real world, minus any crazy stuff coming out of the White House.
In the short term, the S&P-500, as a proxy for the markets in general, is attempting to bottom and then move higher. It just needs to get above the dashed green lines on this chart to suggest that the bull market has resumed.
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The S&P-500 might still want to retest the 4800-ish area once more. A retest wouldn’t be the end of the world since approximately 50% of all corrections normally include a retest. Again, a “retest” means that the correction low is (approximately) hit twice, in a “W” shape, rather than the bottom being “V” shaped. If a retest occurs, then the Fed might lower interest rates at their (Wednesday) May 7th meeting in two weeks, especially with inflation decreasing in the latest CPI & PPI reports, and this could have the effect of rocketing markets higher again. If there is no attempted retest of 4800, then the Fed would have no reason to lower interest rates in May and they would likely wait until June.
Worst case scenario, if we get a “Trump Tariff Recession,” and I do not currently expect to see this, then the S&P-500 might want to very temporarily move down to 4500 before then rapidly moving higher. This also wouldn’t be the end of the world and we would still have a chance to recover back toward 6000 by the end of this year, especially with the Federal Reserve then actively and aggressively lowering interest rates, which is very stimulative for the economy.
We are getting much closer to the end of this market correction. We are in a normal correction that happens once every couple of years, but still within the confines of a SECULAR BULL MARKET THAT LIKELY WON’T END FOR ANOTHER 3.5 YEARS.
The market could go higher from here, or it could retest the April lows before then going higher. The market is down today as I post this blog (faintly yellow vertical highlighted line to right) because Trump spent the Easter weekend droning on and on about trying to find a way to fire Fed Chairman Jerome Powell, which he legally cannot do even though he is the one that originally put Powell in as Fed Chairman. Actually, Trump is setting up the sales-pitch that any further downside will be caused by Powell’s reluctance to lower interest rates (in the face of low but now increasing inflation).
Note, there is a chance that the S&P-500 holds at the 5100 level.
Short term technical analysis… chart posted at 10:30 AM EST on April 21st, 2025:
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That big two day drop shown above (and red dot, far right below) when viewed through the lens of history, reveals that a big downward drop like we recently experienced has always led to giant bull market gains. (Chart courtesy of Bespoke)
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And the (S&P-500) pullback to 4800 touched the exact bottom of the intermediate term (arithmetic) bullish trend channel before bouncing higher again. (I originally drew this red dashed line back in 2022 which was 2.5 years ago.)
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And we remain well within the boundaries of the secular trend channel, which is very bullish longer term. I still believe that we will follow the purple dashed line higher… and I still expect this bull market to go to astronomical levels before it ultimately ends in a debt-fueled inflationary crash several years from now. My goal is to make any crash highly profitable for MarketCycle’s clients. We made a fortune during the giant bear markets of 2000 and again in 2008. Crashes can be much more profitable than bull markets.
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Regardless, in the very long term, and despite any bear markets and crashes, stocks go up and up and up and up. Over the very long term, owning stocks is a no-lose proposition. The dark blue line shows the past 200-year profit line for anyone owning the U.S. stock market.
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Currently, investor sentiment is so fearful that it is now extremely bullish. Extreme fear indicates that everyone has already sold and only buyers are left. (Chart courtesy of Bloomberg Research)
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The stock market (blue line) will eventually follow the bullish “smart investors” (green line) who are now actively buying stocks. (Chart courtesy of Jim Paulsen)
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It is highly unusual that interest rates (green line) would move higher while the USDollar (blue line) is falling. This indicates that foreigners are already tired of Trump’s chaos & confusion and they are taking their money and going home. (Chart courtesy of Standard Chartered Research)
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Foreign ownership of U.S. bonds and stocks has plummeted and the U.S. was temporarily damaged by this. (Chart courtesy of DataStream)
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The money that has been removed from the United States has moved to other countries. MarketCycle also moved some U.S. funds in client accounts to other developed market countries and held in the Euro. (Chart courtesy of Goldman Sachs)
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And a lot of money has moved into gold. MarketCycle’s highest allocated individual asset has been gold for several years now. Most advisories and institutions and hedge funds do not hold gold, and I don’t understand why. I made a 1000% gain via 2x gold from 2001 to 2011 before selling and waiting for the next gold bull market which MarketCycle caught with perfect execution. In my opinion, gold will reach incredibly high levels by the late 2030’s… I mean REALLY high levels. MarketCycle’s client accounts own actual gold bullion safely held in the vaults of the Royal Canadian Mint, where we get tremendous tax savings if we ever sell and we can take physical possession of the gold during an emergency.
Central Banks, such as the Federal Reserve, must know something because they are hoarding physical gold at an almost parabolic pace. (Chart courtesy of Yardeni Research)
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SUMMARY: MarketCycle is still bullish. The market has likely bottomed, barring any incredibly dumb proclamations by our leader. Most of us have grown tired of the chaos & confusion, but the market is becoming numb to the noise and the market will soon ignore it and move higher, likely at the same time that Trump also grows tired of all of this.
Strength is being found in smaller utilities and momentum consumer staples; both are defensive sectors and are mostly non-tariff. Healthcare stocks are showing some strength, but not as much as the Wall Street hype would suggest. Crypto is showing renewed strength and it broke above overhead resistance just this morning. Private credit is still strong. Big bank stocks are not affected by tariffs and they are showing strong relative strength. Small and mid-cap innovative technology is showing renewed strength and they are less affected by tariffs. Big tech is not yet showing outsized strength, but when they do, they are likely to really pop higher. Gold just keeps getting stronger and it is way up today. As mentioned above, developed market stocks now are showing strength and going forward, investment accounts may want to hold as much as 15% in developed market stocks held in Euros (EUR), particularly in a developed-market-growth ETF. United States stocks will still rule supreme over the longer term, regardless of what I wrote above. We have to remember that getting above the two green dashed lines on the short-term chart (above) is of the utmost importance for the continuation of the bull market.
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So, the Report of Findings: The patient has a minor injury that will “self-heal.”
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“You will remember these troubles as no more than waters that have flowed by during the night.” Job 11:16
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Thanks for reading!
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