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The most important charts and themes in markets and investing…
1) Mania
As long as humans are involved in the market, there will be mania.
What is mania?
A rapid, speculative advance that drives the price of an asset far above its fundamental value.
Why do humans do that?
Because we are emotional, we are sometimes prone to irrational feelings of excitement and driven to action by the greatest fear: missing out (FOMO).
Mania always happens in the markets, and I want to highlight two recent examples:
- Allbirds surged 876% after announcing it would sell its shoe business and pivot to AI, bringing back memories of the 2000 internet bubble when companies saw a boost in their stock prices simply by adding “.com” to their names.
- Avis Budget shares soared 886% in a massive short-covering bubble reminiscent of the 2021 meme stock frenzy in Gamestop and AMC.
None of these manias have anything to do with any underlying fundamentals. Allbirds never made money as a public company and Avis Budget lost nearly $1 billion last year.
The advance was purely speculative, relying on “foolers” to buy their shares at ever higher prices. But the euphoria eventually fades and all manias end the same way, with a sharp and often sudden collapse. We’ve seen it in Allbirds and Avis Budget, which are down 70-80% from their recent highs.
The chances of you successfully timing the mania are not high. That’s why most investors are better off watching as spectators and letting the fools trade among themselves.
2) Panic
As long as humans are involved in the markets, panic will occur.
What is panic?
The sudden, extreme and widespread sell-off in assets was driven by fear.
We see panic of varying degrees almost every year in the markets. Here’s the list since the bottom in March 2009…
But not all panic is the same. More extreme panics tend to feature indiscriminate selling at some point, where there is little difference between securities. Fear will only manifest itself: as more investors panic, the sell-off will trigger further declines, creating panic until a “sell everything” mentality takes over.
One way to measure this is to look at the percentage of stocks in the S&P 500 above a certain moving average such as the 50-day. If this percentage is very low, it indicates a “sell everything” panic. The last 4 bear markets (2018/2020/2022/2025) all featured this at some point.
What should investors know about panic?
That joining the crowd and selling in one fell swoop rarely pays off in the short term and never in the long term. In fact, the data shows the opposite: panic selling is usually followed by above-average profits. Panic must be guarded against because fear tends to create opportunities.
We see it once again after the panic in April 2025 with the S&P 500 rising 38% the following year.
This means that if you want to sell, it is better to do it calmly and in a planned manner before panic selling compared to emotion during he.
3) All Time High
The S&P 500 closed at an all-time high on Monday, its 10th of the year.
Does that mean anything?
The reality is that all-time highs, by themselves, do not signal anything other than a rising market. Just because every bear market starts at an all-time high does not mean that every all-time high is followed by a bear market. Far from it.
Since 1989, forward returns after all-time highs have actually been slight above average looking out 1, 3, and 5 years.
Why are all-time highs a normal occurrence in the market?
Because economic growth and company revenues at all-time highs are also normal events. The economy and income trend upward and to the right as time goes by.
At this point, S&P 500 earnings are on pace to hit another record high in Q1, up 15% over the past year. It was the 10th consecutive quarter with record highs in trailing twelve month revenue. So it’s no surprise to learn that the S&P 500 has hit 106 all-time highs during this period.
But what about the rest of the year?
Analysts are projecting all-time high revenues in Q2, Q3, and Q4 with operating profit expected to increase 19% overall. If that’s really the case, then it wouldn’t be surprising if we see more all-time highs.
4) Strength Begets Strength
The S&P 500’s recent 3-week rally of nearly 12% was the index’s 13th-largest 3-week gain since 1950.
At the same time, the Volatility Index ($VIX) plunged more than 43%, the 5th largest volatility drop in history.
What tends to happen after a big market advance and a big drop in volatility?
Further progress with above-average S&P 500 returns in the future. Often, strength begets strength.
5) What Will Warsh Do?
Kevin Warsh is likely to be confirmed by the Senate and become the new Fed chairman before the end of May.
What will he do?
It appears based on recent Senate hearings that he would advocate cutting interest rates (he apparently believes that inflation is actually lower than what government statistics report).
But Warsh only has one vote on the Fed, and most of the other voting members would likely disagree with his reasoning at this point. Reflecting this, the probability of a rate cut at Warsh’s first meeting in June is only 1% and at the end of the year is only 7%.
The stock market is at an all-time high. Credit spreads are near all-time lows. The economy is still in expansion with an Unemployment Rate of 4.3%.
And inflation has been above the Fed’s target rate for 61 consecutive months, averaging 4% per year since 2019. This is not typically a condition that warrants or justifies a rate cut and a stronger possibility could actually be raised for a rate hike.
With the end of April and no resolution to the Iran war yet, justifying a rate cut will become increasingly difficult. CPI is expected to rise to at least 3.5% in April and if the commodity surge continues, we could see a figure of >4% in May. If that happens, the Fed’s next step could be to raise interest rates.
6) Some Interesting Statistics..
a) Dementia rates in the US have fallen by two-thirds over the past 40 years.
b) 30% of car buyers who traded in a vehicle in the US now have negative equity, with an average legacy debt of $7,200. As many as 43% of underwater car buyers choose loans with a term of 84 months (7 years). Their average monthly payment: $932, the highest level ever recorded.
c) Americans spent more than $109 billion on lottery tickets last year, more than they spent on movie, book, concert and sports tickets – combined.
And that’s all for this week. Thanks for reading and have a great rest of the week!
Every week I create a video detailing the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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