by Jason Bodner
May 6, 2025
Stocks always seemed to rise in the 1990s, when I was young, but in 1998, when I was 24, the stock market was in a tailspin. The S&P 500 fell almost 20% in less than three-months. The Asian Financial Crisis lined up with Russia defaulting on its debt. These events put immense pressure on a hedge fund named Long Term Capital Management (LTCM), founded by financial geniuses like John Meriwether and two 1997 Nobel prize-winning mathematicians, Myron Scholes and Robert Merton. If the Scholes name sounds familiar, it’s because he co-authored the famous Black/Scholes equation for pricing options. It is still widely used as the main options pricing model for the $1 quadrillion-dollar derivatives market.
LTCM enjoyed years of stellar returns and swelling Assets Under Management (AUM). All that came to a crashing halt in the fall of 1998 when the firm lost over $4.6-billion due to the confluence of the above-mentioned events. All the math skills and brain power in the world couldn’t save them, and the fund needed a federally organized bailout by private parties to stave off a global financial collapse.
It felt like an unprecedented calamity… but the market survived and thrived: the S&P 500 went on to rally by over 60% before reaching its peak in March 2000. More dramatically, the S&P 500 gained over 25% between its low on October 7th 1998, and Thanksgiving that year – in just seven-weeks.
While geopolitical events are different, 2025 is a similar scenario. The S&P 500 fell a similar near-20% peak-to-trough this year, on a closing basis and -21% to its intra-day low. Despite its recent 15.4% rally from its lows, it is still down 7.5% from the peak and down 3.3% for 2025, through last Friday’s close.
In times of trouble, it always feels different. Just as the 1998 threat of a financial system collapse felt different to me then, Trump’s trade war fueling global recession fears feels different. My bold take: It’s not. And we will be fine. And don’t just take my word for it, the market has already begun telling us so:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s the chart of a rising Big Money Index (BMI), the powerful indicator of big money flows. We can see it plummeted until the market troughed, but then reversed higher. The important distinction, however, is that the BMI didn’t rise due to fresh capital plowing into stocks. While value hunters did step in, buyers haven’t launched stocks to new highs quite yet. The rise in the BMI came from a complete vanishing act of outflows (selling). We can see below that both ETFs and stocks saw the relentless selling just stop:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
You’ll notice in the stocks chart that I pointed out there was a reduction in margin debt that took place coinciding with a drop in stock market prices. Data scientists will often ask: causation or correlation?
I believe the selling was in fact driven by forced liquidations related to margin-calls.
You can see the correlation (or causation?) here:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
While trade wars may not compare to financial collapse, look at how eerily similar the markets and margin-calls are to 1998:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I told you, however, that stocks went on to rally 63% thereafter in 1998.
Look at how margin swelled along with it:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We can also see the market disruption resuming to normal in elevated trading volumes.
Next, look at how volumes exploded as the market sank, and resumed normal when rebounding:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I can tell you that, below the surface, the action is quite constructive too. First, looking at the surface, we see that defensive-sectors are still ranked highest. Utilities and Staples remain at the top of the rankings while growth sectors like Discretionary and Technology remain weak:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
But looking within the sectors, we can see that every single sector has seen a rebound. More importantly, each sector saw a drop-off with outflows. Some even saw a rise from inflows:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If you’ve been reading me throughout this year, you’ll know that I presented several signal studies to show you that the dismal action of March and April actually fore-shadowed bullish market behavior.
I’ll just re-post the summaries of those studies’ past surveys and predictions here:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I posted plenty of other studies showing similar results, but you get the picture. We can revisit them a few weeks later. While I predicted a market low on April 1st, I was off by a week as the S&P 500 troughed on April 8th. Here are the returns thereafter: We must wait to see 3, 6, 9, 12, and 24-months performance, but the studies above show we have as high as a 100% chance that markets are higher six-months out.
Last Friday, the S&P 500 closed higher than the prior day for the 9th day in a row. Historically speaking, what does that look like? I went back and looked at historical returns for the S&P 500 since 1928 looking for nine-consecutive up days. It happened only 55-times in 97-years. Here are the forward average returns:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I was surprised too: We have a better than 60% chance of higher markets all the way from 1 week to 2-years later. Markets were higher more than 75% of the time nine-months or more later.
If you listen to the news lately, you would be led to believe otherwise. Headlines drip with trade war rhetoric, interest rate uncertainty, and global recession fears.
It seems very similar in terms of fear level as LTCM collapsed in late 1998
Or a downgrade of U.S. debt and European sovereign debt crisis in 2011.
Or Brexit and Trump’s first surprise win in 2016.
The truth is that there’s always a reason to sell. This chart below plots many from just the last 15-years:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The pattern repeats itself year after year. There’s always a reason to sell.
But since 1928, the S&P 500 has risen 29,645%. Trying to time the market for perfect sell dates, and sidestepping perceived risk can work, but only if everything lines up just right., twice, selling and buying.
A better investing method might be identifying stellar growth stocks and holding them for long-term appreciation. This method works best if you can tune out the noise that compels you to sell out of fear.
It’s no simple task, but the data I offer here should serve as a good indication that the news is often short-term fuel for drastic price action. In the end, it has proven to be a stellar opportunity.
“Worry does not empty tomorrow of its sorrow. It empties today of its strength.” – Corrie Ten Boom
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Friday’s Jobs Report Doesn’t Give the Fed a “Pass” on Cutting Rates
Income Mail by Bryan Perry
Hard Truths from Warren Buffett on the Federal Debt Crisis
Growth Mail by Gary Alexander
First-Year Flops Are Normal in Market History
Global Mail by Ivan Martchev
There is a Path to Fresh All-Time Highs for Stocks
Sector Spotlight by Jason Bodner
My Stock Market “Baptism of Fire” Was in 1998 (When Was Yours?)
View Full Archive
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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