Why You Need to Change Your Mind as the Facts Change
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You might have heard this famous quote attributed to renowned economist John Maynard Keynes...
Why You Need to Change Your Mind as the Facts Change
By Marc Chaikin, founder, Chaikin Analytics
You might have heard this famous quote attributed to renowned economist John Maynard Keynes...
When the facts change, I change my mind – what do you do, sir?
On March 12, when the S&P 500 Index ended up closing at 5,599.30, I said this to Chaikin PowerFeed readers...
As regular readers know, my "bull market" scenario for 2025 is based on a strong economy and the past 100 years of election-cycle data that show strong stock market performance in a post-election year.
But if stagflation becomes a reality and earnings suffer, I'll adjust my outlook.
As you've surely heard, President Donald Trump held his "Liberation Day" address in the late afternoon on Wednesday. And he announced a broad swath of tariffs against most of America's trading partners.
These were much worse than expected. And not surprisingly, the market didn't react well.
Make no mistake... tariffs are a tax on the American consumer. And "Mr. Market" knows that.
Well, the S&P 500 collapsed by nearly 5% yesterday to close at 5,396.52. That means it broke below the March lows at approximately 5,500.
Since Trump's inauguration on January 20 – and even before the big tariff announcement this week – the facts on the ground have been changing...
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The Positive Outlook Is Breaking Down
In short, just about everything has been changing.
The technical picture has been breaking down... the economy has stalled... and inflation, which has been persistent, is poised to go much higher because of the new tariffs slated to go into effect between in the coming days.
Three weeks before Wednesday's tariff announcement, there was evidence of rising inflation and a slowdown in the manufacturing economy. As I said in that same March 12 PowerFeed, two important economic reports had already contributed to a sharp sell-off...
The first was the Federal Reserve Bank of Atlanta's recent GDPNow forecast for first-quarter GDP growth.
In the most dramatic shift on record, this model predicted an annualized drop in GDP of negative 2.8% in the first quarter of 2025. That was down from a forecast of positive GDP growth of 2.3% just one week earlier.
And as I also noted...
Meanwhile, the Institute for Supply Management's ("ISM") Purchasing Managers' Index ("PMI")... fell in February and pointed to slower growth in the manufacturing sector of the U.S. economy.
Importantly, it showed demand easing while prices paid were increasing. That's the classic definition of "stagflation."
So, the real question is... What does this mean for us as investors?
First, the tariffs as proposed are serious business. It's a fundamental shift in the global economic exchange.
We all know that it will take businesses time to react. And that's the biggest problem in the short-to-medium term.
But we've already seen automaker Stellantis (STLA) pause production at plants in Canada and Mexico for multiple weeks and temporarily lay off 900 workers in the Midwest.
If we stay on this current path, many businesses will have to revise earnings estimates downward. That will create incredible selling pressure in the markets.
This pattern could play out across the broad market. And it's one that would significantly reduce earnings.
Put simply, unless something dramatic changes, this is the sort of situation that could lead to a worldwide recession... and recessions lead to bear markets.
If you are a long-term investor, hope for the best – but prepare for the worst.
Hold on to your core positions. But if you're worried about positions keeping you up at night, "sell down to your sleeping level"... so that you don't panic if the market drops precipitously.
If you're a trader or intermediate-term investor who has followed our advice to "buy the dips," protect your capital with stop losses that limit your downside risk.
Again, as the facts and situation change, I'll continue to adjust my outlook accordingly.
Here at Chaikin Analytics, my colleagues and I will be here to guide you through these turbulent times.
Good investing,
Marc Chaikin
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-3.98%
2
24
4
S&P 500
-4.93%
49
310
141
Nasdaq
-5.35%
3
72
25
Small Caps
-6.42%
112
947
350
Bonds
+0.46%
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain Bearish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Utilities
+1.95%
Consumer Staples
+1.5%
Health Care
-1.27%
Real Estate
-1.47%
Materials
-4.11%
Financial
-4.96%
Industrials
-5.3%
Consumer Discretionary
-6.06%
Communication
-6.2%
Energy
-6.6%
Information Technology
-7.7%
* * * *
Industry Focus
Capital Markets Services
2
52
8
Over the past 6 months, the Capital Markets subsector (KCE) has outperformed the S&P 500 by +0.59%. However, its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #9 of 21 subsectors and has moved down 5 slots over the past week.
Indicative Stocks
ARES
Ares Management Corp
LPRO
Open Lending Corpora
BEN
Franklin Resources,
* * * *
Top Movers
Gainers
LW
+10.01%
MOH
+7.53%
CNC
+5.86%
ELV
+5.44%
SBAC
+5.26%
Losers
SNDK
-19.74%
DELL
-18.99%
WDC
-18.26%
BBY
-17.84%
ZBRA
-17.06%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
Earnings Surprises
LW Lamb Weston Holdings, Inc.
Q3
$1.10
Beat by $0.23
CAG Conagra Brands, Inc.
Q3
$0.51
Missed by $-0.02
AYI Acuity Inc.
Q2
$3.73
Beat by $0.03
* * * *
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This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
