CWS Market Review – March 4, 2025

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Ninety-two years ago today, Franklin Roosevelt was sworn in as president. In his inaugural address, President Roosevelt said, “Let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

Indeed, fear is a scary thing, and there was a lot to be afraid of back then. The thing about fear is that it can easily lead to more fear, and that will compound on itself. During the Great Depression, the Dow dropped from 380 to 40. The Dow didn’t make a new high for 25 years. That certainly puts our fears of a 10% or 20% pullback into some context.

Back in FDR’s time, the new president wasn’t sworn in until March 4. That wide length and uncertainty between the Hoover and Roosevelt administrations led Americans to move the inauguration date to January 20.

Once he became president, Roosevelt got busy. Thirty-six hours into his presidency, FDR declared a bank holiday. Every bank in the country was shut down. Can you imagine that! Americans couldn’t take their money out, or even put new money in. The government inspected every bank in the country and only fiscally sound banks were allowed to reopen.

On March 9, Congress passed the Emergency Banking Act. The measure was rushed through Congress as quickly as possible. In fact, it was done so quickly that there was only one copy of the bill for the entire House of Representatives.

FDR’s order extended to the New York Stock Exchange. The stock market ended the day of March 3, 1933, at 53.84. After that, all trading was halted. The NYSE didn’t open again until March 15.

The paused worked, and the panic faded. Americans returned more than $1 billion to their banks. The Dow closed March 15 at 62.1, a gain of 15.3%. That was the single-largest gain in market history, and the record still stands today.

But in my opinion, that record deserves a small asterisk. While it’s technically true that March 15, 1933, was the best day in market history, that includes the buildup of nearly two weeks without any trading.

There’s a lesson for investors here. What’s interesting to me is how panic can build on itself, but so can calmness. Once people were forced to stop selling, other people lost the need to sell which, in turn, caused less selling. Sanity slowly returned. As it turned out, the initial problem was fear itself.

The High Beta Correction

That brings us to this week’s panic. Actually, panic is too strong a word, but the financial markets are certainly not happy. The stock market fell for the eighth time today in the last nine sessions, and five of those drops were by more than 1%.

The S&P 500 has now wiped out its entire gain since the election. That’s a loss of $3.4 trillion. The combined loss truly is not that much (about 6%), but it comes on the heels of a very placid time for the market.

The market could be in worse shape than it superficially appears. For example, 70% of the stocks in the S&P 500 are down over 10% off their 52-week highs. More than 38% are down more than 20%. It’s as if there’s a stealth bear market that’s quickly taking out some of Wall Street’s favorites. Tesla, for example, is 44% below its 52-week high.

I’ve mentioned this before, but it bears repeating. The selling is falling disproportionally on riskier stocks. Low risk stocks have barely been hit.

Here’s a chart of the S&P 500 High Beta Index (in blue) along with the S&P 500 Low Vol Index (in red):

Notice how sharply the blue line has fallen. The chart above is a good way of seeing how the market swings between fear and greed. See how stable the red line is in comparison. The same effect is happening between value stocks and growth stocks. The Nasdaq Composite is down 8.7% since February 14.

There are sound reasons for the market to get more conservative. At the top of the list is the escalating trade war between the United States and Mexico and Canada. The tariffs are set to go into effect at midnight tonight. Last year, the United States had imports worth $1.4 trillion from Canada, China and Mexico.

According to the New York Times, “All goods imported from Canada and Mexico are now subject to a 25 percent tariff, except Canadian energy products, which face a 10 percent tariff, according to the executive orders.”

We’ve also been getting a raft of softer economic news. For example, the Atlanta Fed’s GDPNow model now estimates that the U.S. economy shrank at a 2.8% rate during Q1. Just a few days ago, the model was forecasting 2% growth. We also learned that in January, construction spending fell by 0.2%. The ISM Manufacturing Index fell to 50.3. That still indicates a growing factory sector but not by much.

Last week, the government revised its report on Q4 GDP growth to 2.3%, but the shocking news came with the personal income report. That usually comes out the day after the GDP report. For January, personal income rose by 0.9%, but spending (officially called “personal consumption expenditures”) fell by 0.2%.

Here’s a look at real PCE, which means adjusted for inflation. That little dip at the right is what freaked out Wall Street. I’m not concerned about one or two bad months, but I don’t want to see a bad trend develop here.

President Trump will be speaking this evening. Early reports suggest he’ll be talking about Ukraine and his tariff policies.

This Friday, we’ll get the jobs report for February. Wall Street expects to see a gain of 170,000 net new jobs. I’ll be curious to see if that number is as strong as expected. In January, only 143,000 jobs were created which was below expectations. The unemployment rate is expected to be 4.0%.

If the jobs numbers are bad, it could convince investors that they were right to exit High Beta stocks.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on March 4th, 2025 at 4:19 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.