S & P 500. Up or Down? Sunday, April 6, 2025

Last year and earlier this year, I was approached by a professional money manager asking me to transfer funds over to Morgan Stanley. In our last conversation in February, I mentioned to him that I didn’t feel like being in the market and that a significant correction was likely due. He said he and his group felt the same so we agreed it was best to just not move forward.

Last week proved what many people were thinking, significant changes by the new administration disrupted markets. Many thought Trump was pro-stock market considering his past focus and statements made prior to Biden winning in 2020 that the stock market would crash if Biden was elected. It didn’t then but sure did this week. Almost everything is down.

I am protected but many people are exposed to stocks in their 401K and other accounts, and last week was ugly. Overall, the market is down somewhere between 17%-20% since the highs in February and that is a significant hit for many retirees depending on their retirement accounts. I am glad I was protected and even made money buy placing a few strategic bets on the downside that even I didn’t think would be as dramatic as it was last week.

Now, despite the fear factor and overall negative sentiment, I’m hoping there will be a 2%-4% bounce on Monday or this week. Many people are praying for it. The alternative is continuing to see a free fall and wondering if buying into it would be trying to catch a falling knife.

Earlier this year, while listening to Bloomberg radio, one analyst said she expected the market to go down by about 10% and then to gradually recover and end the year positive. I’m sure she also didn’t expect that to happen so dramatically but it did happen and here we are.

My non-technical analysis of the current situation is that we might see another 3%-5% decline this week but sometime this week we will simply have to have a bounce of some kind because many investors will think the deals are just too good to resist. As to the overall economy, the next 6-12 months looks to be pretty sad.

• Government is being downsized
• 401(k) and other retirement accounts have gone down so people will spend less
• Overall spending will likely go down because goods will be more expensive
• FUD is definitely at a high
• Crypto currencies including “stable coins” threaten to replace the dollar, leading me to think crypto markets basically have a license to print money right now. I feel further legislation permitting these will be a big negative – though unlikely because the new administration is very pro-crypto. The new administration’s personal interests seems to have a considerable conflict of interest.

The new DOGE is a great idea but anytime there is less spending there is also less tax revenue. The idea that we need to pull back on spending because the country will go bankrupt otherwise seems to be common sense. At the same time, people in government tend to not like the idea of losing their jobs and some might consider government jobs to be a stable backbone of the overall economy. People, including my father, took government jobs in large part because the government is historically viewed as stable and government jobs as being a safe haven.

At a time when AI threatens to make many jobs obsolete, many people are trying to figure out how they add value and while common sense might be that if an AI or some other computer system could do the job quicker and cheaper that might be the route to go – we need to think about the people.

Surprisingly, despite the AI adoption, the recent jobs report was good. Over 200K jobs were created assuming the jobs data is accurate and not just some report generated to help boost falling stocks.

The big questions are whether the tariffs will cause inflation, reduce spending, and how long will it take for companies to start moving manufacturing back to the United States. And, once that happens, will the U.S. just be a bubble with increased tariffs by other companies limiting growth. The uncertainty is stressful.

Falling knives

I remember the 2008 financial crisis when everyone was selling. I watched an interview of Warren Buffet laughing and just giddy that he was able to use his cash to get great deals on companies with preferred shares and other perks – at a time when everyone was scared. This might be the time to jump in.

I’m taking a very cautious approach, as many people are, thinking about what might happen over the next few months. I’m sitting on the sidelines mainly, waiting for a time, as most people are, when we’ve reached a bottom and we can start growing again.

I think a realistic recovery number would be an S & P 500 back to 5500 by the end of the year. A good return for people entering now. Not great for people who bought in the early part of the year.