Market Fear Over Yet? More Squeaky Bum Time or Time to Buy the Dip?

Recently, there’s been a lot of talk about whether the U.S. economy is heading into a recession. Some experts are saying that the growth we’ve seen over the past two years was mostly fuelled by frivolous Biden government spending (which essentially means more debt), and now things might be slowing down as Trump tries to rearrange the financial furniture to make the economy more based on business rather than socialist debt. Is this time to panic and run, or is this time to stay calm, fill yer boots and buy the dip?

Since 1998 there have been 11 corrections (price declines >10%) in the S&P 500, with an average price decline of 14.3%.

The U.S. economy has grown a lot in the past five years, but that artificially created growth fuelled by trillions of dollars pumped into government jobs and woke socialist initiatives has basically had the rug pulled out from under it (not mentioning any names = DOGE). The last four years of Bidenomics “growth” were nothing more than a debt-fuelled mirage. The Trump admin and Fed are now more focused on reducing profligate government waste and spending, as well as lowering inflation. This could lead to lower interest rates, a weaker U.S. dollar, and a shift in investments toward bonds, international stocks, and gold.

Many had predicted a market correction back in December, and it happened quickly— minus 10% in just 20 days, the fifth-fastest correction in the last 75 years. However, this is not the start of a long-term bear market. Instead, it is a normal correction and time to buy the dip.

Some signals to look for, ChoCh: When BofA FMS cash levels rise above 5% (triggers “buy signal”) and/or rise by 60bps in 1–2 months; if March Global FMS (released Tuesday, March 18th) shows cash levels up from 3.5% to more than 4.1% would end the “sell signal” that was triggered in December for stocks, and indicate bulk of correction done (Since the BofA Global FMS Cash Rule “sell signal” triggered on Dec 17th, and since then the Mag7 -20%, Nasdaq -14%, S&P 500 -9%, ACWI -5%, EFA +6%).

Buy the dip

The S&P 500 could be a good buy around 5,300 if these signals align. However, there could still be some short-term pain in the market, especially if certain sectors, like broker-dealers, show signs of weakness. The XBD Broker-Dealer Index (which tracks financial firms) is a key indicator to watch. If it breaks below 750, it could signal deeper trouble for the market.

On the bright side, financial conditions are easing. Lower bond yields, a weaker U.S. dollar, and falling oil prices are all helping to stabilise the economy. Historically, corrections end when the “laggards” (underperforming sectors) finally crack, and the “leaders” (strong sectors) stabilise. For example, the “bro bubble” basket of stocks (which surged 55% between the U.S. election and inauguration) has already fallen 25%, which could mean the worst is behind us.

Protection while US economy adjusts to reality:

– Bonds: With government spending slowing down, long-term bonds could be a good bet.
– International Stocks: Stocks outside the U.S., especially in Europe and China, look cheaper and could perform well.
– Gold: Gold is a good hedge against a weaker U.S. dollar or a potential trade war. Long Gold on weak US dollar, gold is the best hedge for trade wars and/or collapse in real rate. Peak “US exceptionalism” = peak US dollar; Gold best hedge against collapse in real rates driven by either 2nd wave of inflation or Fed needing to massively cut rates.

Why Not Just Wait for the Bottom?

Some investors are already jumping back into the market, hoping to “buy the dip”. But a safer strategy would be to: diversify into bonds, international stocks, and gold instead of trying to time the market perfectly.

Whatever happens, here’s to a bumpy, dangerous, yet interesting ride.