Constructive Factors in the Recent Market Sell-Off
Good can always be found in even the harshest of life’s misfortunes and experiences. While it’s not generally my inclination to see that good, I have faithful friends who routinely point it out. I remember having lunch at Iceberg Lake on Mt. Whitney in 2010, when suddenly before our eyes an avalanche released on the very slope we were to ascend! Moments later, while I was a bit panicked about the possibility other parts of the mountain would start falling off, my climbing buddy shed light on the truth a far lower probability existed for another avalanche to release on our route given the development. This is, in respects, a relevant analogy to the ongoing slide in stock prices, and as a fearful sentiment builds in this market, this may prove a beneficial time to identify the good in it.
We remain in a solid ‘earnings-growth’ market. S&P 500 businesses have seen 8% average earnings growth in the last decade, only 7% annually long-term, and yet the forecast for 2025 is 9.5%. Fidelity sees 14% earnings growth ahead and thinks the estimate is too low!¹ A bear market in stocks will not likely accompany such earnings growth.
Most measured sell-off’s are corrections (drop of 10%-20%), not bear markets (drop of 20%+), especially during the blow-off tops of highly speculative advancements (AI). Remember, the market is highly contrarian by nature, equipped to inflict the maximum amount of pain on the greatest number of investors possible. It’s also true the financial pain of selling in a bull market that hasn’t yet run its course can exceed that of selling too late in an oncoming bear market.
The media sells hysteria, and its reporting does not constitute investment research, but it can be thanked for contributing to what has quickly become the poorest market sentiment since a month before the 2022 bear market bottom,² evidence also suggesting we are in a mere correction.
Market declines generally bear broadly lower stock valuations, and lower P/E ratios mean there is less froth built into stock prices, meaning less debris to dodge, like the terrain on a slope following an avalanche.
Just as our best decision from Iceberg Lake clearly was to ascend the already-released hill, wise reactions to the present sell-off might include:
Do not panic! When fear is identified immediately take a long walk in nature and think about something entirely different. Do not think about investment decisions until calm is restored.
Have your bear market ‘stop-loss’ program in place and rely exclusively on pre-positioned tools, not your emotions or intellect, to instigate action.
Focus on high quality businesses with gushing free cash flow and sustainable retained earnings; ride the earnings wave.
Don’t approach the slope until the avalanche stops! You don’t need to pinpoint the bottom, but you do need to avoid doubling down before the house burns down, and a full-blown trade war can burn the house down.
May God bless our investing efforts and intentions, Shaun.
“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. ~Mathew 6:19-21
1 FPA (Financial Planning Association) Live Lunch Presentation, Iron Works, Warwick, RI, January 8, 2025, Fidelity Investments 2025 Outlook
2 Dr. Eifrig’s Health & Wealth Bulletin, “The Market Won’t Stay Down for Long, March 12, 2025
The opinions voiced in this material are general and are not intended to provide specific recommendations. The economic forecasts set forth in this commentary may not develop as predicted.
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