The last several weeks in the market have been challenging for long-term investors and traders alike. Mixed messages from policy makers, generally positive earnings news, and renewed concerns on economic growth have put volatility on the boil with the VIX, the market’s fear gauge, rising from 14.7 to 27 since February 11. For reference, a reading above 20 signals greater volatility while a reading above 30 generally connotes serious market stress.
Stock prices have retreated with the center of that retreat located within the largest growth stocks that had been the stalwarts of the S&P 500’s rise over the past two years. Apple, Microsoft, Nvidia, Broadcom and Tesla are now so widely held it must seem to some investors that the wheels are falling off the bull market. The widely followed investor sentiment surveys confirm this. Twice as many investors are now bearish as are bullish. This is almost a perfect reversal from a year ago and the most bearish reading since the market sell-off in 2022. The decline in sentiment is rational when the current rise in chaos and uncertainty is considered.
Investors, writ broadly, tend to overreact at changes of direction, whether that change is sourced from policy change, an external threat, or the anticipation of an economic retraction. When the VIX is elevated and sentiment is soured, as has occurred recently, stock prices retreat, sometimes painfully so. These conditions also lead to buyable opportunities for long-term investors who are aware of what they own and what they would like to own.
Looking under the hood of the recent decline provides some confidence for those investors that want to “step up” and buy stocks at these current cheaper prices. As of March 7, the S&P 500, dominated by the big growth stocks, is down by 1.9% in 2025. The Equal Weighted S&P 500 (where all companies are accorded the same importance) was positive by .57% over the same period. So, clearly some U.S. stocks are weathering current conditions better than the biggest stocks which make the biggest headlines.
The MSCI EAFE index, which tracks stock prices for the developed markets outside the U.S., is positive by over 11% so far in 2025. So, a diversified investor who maintains exposure to overseas markets is looking at gains in that part of their portfolio to provide some hope and perspective during this rough patch for U.S. stocks. Bonds have performed their traditional role as a bulwark against stock declines this year. The Barclays Aggregate Index of investment grade U.S. bonds is positive by 1.8%, cushioning the decline in stocks.
We are not saying that this decline in U.S. stock prices is over or about to end. We think you should run from any advisor who claims to know the timing of market rises or declines. Selling may intensify, markets may stay unsettled, and volatility may increase. With the S&P trading at a rich 21 times its next year’s anticipated earnings, we believe it would be foolish to counsel investors to jump in with both feet. What we do know, however, is that it has paid to bet on an eventual market recovery, and it is better to purchase shares at lower rather than higher prices.
While watching current conditions with interest and analyzing the risks inherent in them, we are also tracking the opportunity uncovered by lower prices in attractive stocks. Franklin D. Roosevelt once said that “smooth seas seldom produce skilled sailors.” Our experience with the periodic turbulent episodes of the past 40 years or so has taught us that instead of running for a calm harbor, our efforts are better focused on adjusting our sails and battening the hatches. While we are vigilant in scanning current risks and keen to make appropriate adjustments, we know to be protective. As importantly, we are anticipating the purchase of stocks at attractive prices as this cycle plays out.
Thank you as always for the confidence you have reposed in us in the important task of managing your portfolio.
RELATED LINKS
Beacon ‘Pointe of View’ – A Market Update March 2025
White Paper: U.S. EXCEPTIONALISM, MAIS BIEN SÛR
Important Disclosure: This commentary is for informational purposes only and should not be considered investment advice. Opinions expressed herein are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal, or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions. Past performance is not a guarantee of future results.
