Editorials & Other Articles

But don't expect a big dramatic crash. There could be one, but there is a lot of reluctance to sell. Retail investors are buying the dips, which looks like a winning strategy until suddenly one time it isn't and they get burned badly. I suspect retail investors don't have the discipline to back out of a losing dip trade.

A crash happens when there is a "rush for the exits", when brokers get orders like "sell everything ASAP".

It is said that bull markets "climb a wall of worry" and bear markets "slide a slope of hope". In bear markets, recalcitrant bulls buy each rally only to be disappointed. Typically bear markets decline to a base (unknowable where it is during the decline). After a period of basing (sideways movement) and maybe after a final capitulation selloff, a new bull market is born.

However, in recent years, 2008 and 2021, markets have made V bottoms. We saw one in April, but that was not much of a bottom. I don't think there is going to be a dramatic government rescue this time because deficits are ballooning under the RepubliConners and there are enough deficit hawks to put the brakes on. The Fed might take dramatic action at some point cutting rates and easing, but is likely to react only when there is more clarity on the economy's direction and that is likely to be too little too late.

We could even see some modest new highs in S&P 500 in June, but beware of the risk to reward ratio. Stocks are historically high (PE ratio) now and there are dark clouds and headwinds coming out of DC because there does not seem to be a fundamental change in regime policy and the Big Bad Bill has math that doesn't add up. It was written by an AI called Rosy Scenario. For example, it bases growth estimates on no impact from tariff taxes and $200 billion a year in an uninterrupted stream for 10 years.

If tariffs work and imports go down and manufacturing on-shores, then tariff revenues go down. If manufacturing does not on-shore (tariffs fail at job 1), the economy contracts and imports go down so tariff revenues go down.

Note: In economic matters I am constantly surprised about one thing or another, and I could be wrong about everything.