Worried couple meeting with their investment advisor
The leading bearish signs were right: The stock market is at risk of a major selloff. What to do now? Raise cash reserves for future opportunities. However, do not expect the good times to return soon.
Why not? Because it takes time for widespread optimism to wash out. In spite of the reality weakening over the past weeks, bullishness remained the driving force. So, why the sudden change? Because the multiple uncertainties and negatives have finally begun to dent investors’ optimism.
WSJ reveals this change of heart today (Mar. 10):
Front page (A-1): “Wary Investors Play Defense In Switch to Dividend Stocks“
“Rattled by the threat of trade restrictions and a slowing economy, some investors are turning to a classic defensive play: dividend stocks.”
Front page (A-1): “Trade Clashes’ Effects Often Outlive the Tariffs“
“President George W. Bush’s tariffs on steel products were in place for less than two years. Their impact on the economy likely lasted far longer.
“Designed to protect the beleaguered but politically influential U.S. steel industry, the 2002 tariffs raised costs for companies that used steel in auto parts, metal stamping and more. Though the tariffs were rescinded the next year, the affected companies became less competitive as they tried to sell their own products abroad….”
Business & Finance front page (B-1): “Markets Wake Up to New Reality“
“After President Trump was elected, investors got very excited about all the nice things he’d promised and forgot about stuff that would be bad for stocks. Now they are very anxious about all the stuff that is bad for stocks and have forgotten about the nice things.”
Page B-5: “Stocks Always Rise in the Long Run, Right? Well, Not Necessarily“
“There is a common belief that while U.S. stocks can inflict losses in the short term, they are sure to deliver gains if you hold them for 10 years. And if not in 10 years, definitely in 20 years. Unfortunately, this perception is a misperception.
“This isn’t to say that stocks are bad investments. But investors need to understand that while buying and holding stocks for long periods usually pays off, it isn’t guaranteed. Stocks can be risky investments, even if they are held for decades.”
“Heard on the Street” (B-10): “Tariffs Inflict Pain on Home Builders“
“Trade levies could add an extra $10,000 to the cost of building a home, likely coming out of companies’ margins
“Home builders warmed to President Trump’s return initially, especially promises to gut regulations that push up construction costs. But six weeks into his second term things aren’t going to plan for the industry, or the U.S.’s squeezed home buyers.
“Tariffs on Mexican and Canadian imports that came into force this week will make it more expensive to build housing.”
Online today (Mar. 10) – “Is the U.S. Heading for a Recession? Here’s What the Experts Say“
“The big question on everyone’s minds these days: Are we headed for a recession?
“Economists at global banks are increasingly taking a gloomier outlook, with economists at major banks either upping their recession forecasts or lowering their growth outlooks in recent days.”
And there is more…
Those six WSJ articles do not cover all the uncertainties and risks. Here are my previous articles that discuss many of the issues. While they are starting to be recognized, their full negative impacts have yet to be seen – and felt.
Dec. 10 – “2025 Outlook – Expect A New Investing Cycle“
“Major investment forces are rejoining to produce a ‘new’ investing reality – one based on classic investing strategies and wisdom.”
Dec. 21 – “2025 Investment Outlook: A Year Of Topsy-Turvy Reversals“
“Goodbye to overwrought speculation – Hello to enlightened reality.”
Dec. 28 – “Eight Issues Could Undermine The 2025 U.S. Stock Market“
“As the 2025 New Year’s excitement ends, look for the U.S. stock market to falter. It is carrying a lopsided enthusiasm from 2024, so 2025 could be a period of adjustment.”
Dec. 31 – “2025’s Outlook: Capital Markets Will Correct Federal Reserve Irregularities“
“Time’s up. The fallacy-driven beliefs and actions have had their turn. Once again, the visible irregularities are stretched. Therefore, the misshaped environment is ready to produce profits from reality-driven investing.”
Feb. 14 – “Wall Street’s Four Bullish Views Will Likely Reverse“
“The stock market’s behavior is the gauge by which we can measure Wall Street’s attitude and outlook. Clearly, today’s reading continues to be one of bullish optimism.
“However, there is a problem with following Wall Street’s current enthusiasm. The four bullish views cited as reasons to own stocks carry the risk of having reality chip away at the optimistic rationale.”
Mar. 1 – “Significant Uncertainties Put U.S. Stock Market At Risk“
“Now is a challenging time for consumers, economists, businesses and investors (including professionals). Multiple, diverse concerns are heightening uncertainties dramatically, putting the U.S. stock market at risk. There are three risk areas to examine: Normal, Federal Reserve, U.S. Government.”
Mar. 8 – “U.S. Stock Market: Homebuilder Reversals Raise Concerns“
“After a lengthy rise, homebuilder stocks have dropped around 30%. Time to buy? Probably not. Fundamentals began weakening last year as homebuilders continued to build their significantly large inventories even as sales tapered off. (See Oct. 26 article, ‘Homebuilder Optimism May Be Ending As Conditions Weaken‘)”
The bottom line: Multiple uncertainties can produce stock market turmoil
Unlike risks, uncertainties are hard to measure, both in probability and in possible results. That is why bullish markets tend to ignore them. However, once reality returns, those uncertainties enter investors’ thinking. Then, if and when the uncertainties gain shape and weight, investors begin to imagine what else could go wrong. Hence, bulls become bears.
