Did a social media post by President Donald Trump just threaten to bring down the three-year bull market in stocks? No.
Was the stock market set up so that just about any bearish news could creep in and tip the whole thing over? Yes.
Because that’s how it always happens. And to paraphrase an old saying, how did the stock market collapse? Slowly, then all at once.
Not for a moment should you think I “know” what’s going to happen. I gave up being Nostradamus a long time ago. But I want to remind you that today’s markets are not like those of our parents. Or our grandparents, for that matter.
Today’s market is the latest threat to a very narrowly driven up move in U.S. stocks that has just reached its third anniversary. The “AI trade era” might be what we remember this as. But will we remember it in the past tense very soon? Or, is this just another so-called “buy the dip” moment?
That’s what went through my mind as a Truth Social post from Trump shook up Friday morning trading. And I thought about what my go-to indicators were for moments like this. I could not list them all, as we don’t have that amount of space and time.
Risk management is my primary objective. Because everyone can find an endless number of ideas, picks, and predictions. They range from consistently excellent to consistently hazardous to our wealth.
So here, I’m going to simply list three different indicators I’m watching right now. They are not about trying to guess the next move in the S&P 500 ($SPX) and Nasdaq-100 ($IUXX) indexes, or even the bond market. Remember what I said just above: The “offense” is the easy part.
The focus for me when we get a “warning shot” like Friday’s is to monitor things that help me decide if this is the end of something, or the start of something bigger (to the downside).
This is borne of having survived (and even thrived) in sustained down markets starting last century. And if there’s a top takeaway here, it is that what starts as protecting capital in rough waters can soon convert to exploiting a severe market decline. But first we have to have one. One day is certainly not enough.
Let’s start with the most important indicator, since it is what is holding up the entire stock market. I find it hard to believe that there is “help from below” in terms of smaller large-cap stocks and small-caps. They have not rescued the big dogs in a long time. For a day or week, perhaps. So I’m not counting on a sustained transition from growth to value, big to small, or anything of that sort.
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