by Jason Bodner

March 11, 2025

In 1841, Charles Mackay wrote “Extraordinary Popular Delusions and the Madness of Crowds,” a thick read, but important in understanding the human mind’s approach to investing.

One of those delusions is the 1630s Tulip Mania. Tulips became the ultimate status symbol. A single rare bulb was so valuable that it cost as much as a luxurious Amsterdam house. All speculative bubbles pop. Tulip prices crashed virtually overnight, and many investors were left financially ruined:

Tulip Bubble Chart

Not all manias are financial. There’s also the Dancing Mania of 1518, when Frau Troffea, a woman in Strasbourg (in modern-day France) suddenly began dancing in the streets and couldn’t stop. Within days, dozens of people joined her, twisting as if possessed. After a month, there were hundreds of dancers.

Doctors and authorities had no clue as to what was happening. They encouraged more dancing, hiring musicians, thinking it would cure the problem. It didn’t. People collapsed from exhaustion, dehydration, and some even died from heart attacks and strokes—literally dancing themselves to death.

The dancing madness continued for months before finally fading away as mysteriously as it began. Some blamed food poisoning. Others blamed demonic possession. We’ll never know. My point is that these stories highlight the fact that herd mentality can yield unfortunate consequences – even in stock markets.

Investor crowd-think can lead to disastrous consequences. Countless historical bubbles have ruined investors – the internet bubble, the housing bubble, crypto and meme stocks…. The list goes on.

To be clear, I don’t think we are in a bubble right now, or recently, but there has been a sudden shift in sentiment in the last few weeks. The crowd went from giddy to paranoid in just a few days.

Let’s investigate why I think fear has gripped the wheel – but logic will prevail in the end…

  • March is a seasonally strong month. But the market is nearing oversold by traditional breadth metrics, i.e., on March 6th, 66% of the roughly 5300-stocks I monitor daily were trading below their 50-day moving average. Based on March’s positive record, I suspect this level of volatility will pass and we will finish March on a strong note:

Main Index Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • After hitting all-time highs February 19th, the S&P 500 has fallen by as much as -6.5% since then. While it doesn’t feel nice, it is actually a bullish sign going forward. Here is a study showing strong returns, going forward, after the S&P has fallen by 6% or more in 10-days:

SP500 Table 1

  • My data has registered huge outflows of 1674 signals in just eight-days. Again, while ugly, the forward returns from such situations are quite pleasant:

Outflow Table 1

  • Digging further, days like last Monday which had only 6.4% of stocks showing inflows, I examined all days like that, and the forward returns are also solid:

Inflow Table 1

  • I suspect much of the trade war and tariff talk is just rhetoric. Trump is an aggressive negotiator, so he must show he means business. It’s easier to flex muscles against your friends (like Canada and Mexico) rather than enemies. On that note, he appears to be cozying-up to Russia and thus forcing Zelensky’s hand. The much-publicized ceasefire talks in the Oval Office went south fast. It was a laughing stock on the news, until Zelensky posted to his social media that he is willing to work under Trump’s leadership to secure peace. He is also willing to sign the natural resource deal. That’s an example of how Trump negotiates: He uses strong-arm style. I think the same is happening for tariffs. Canada may vocally oppose tariffs, but 78% of their exports are to the U.S.
  • Furthermore, we can see that, over the last three-years, high outflow days like last Tuesday, March 4th – when we saw 374 outflow signals – typically line up with near-term market troughs:

Big Money Stock Buy-Sell Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • In fact, the 76 prior times we saw outflows like this showed us positive returns thereafter:

SP500 Return Table 1

  • If we look back 10-years, which excludes the 2008 financial crisis, we see a stronger profile:

SP500 Return Table 2

  • Sales and earnings were stellar for Q1: 75% of companies beat earnings estimates and 63% of companies beat sales estimates. This is right in line with the 10-year average:

FactSet Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While guidance was sometimes more tepid than Wall Street wanted, the environment is still strong.

  • I expect more rate cuts than the market is pricing in. The United Kingdom and Japan are in recession while Germany, the Euro-zone, and Canada are experiencing economic hardship. Global rates are coming down. I expect three or four rate cuts this year, while the market expects two. But, as pointed out last time, the market almost always gets this wrong. Just look at this chart, where the solid line is reality (the Fed funds rate), and all other lines are pundits’ projections:

FED DOT Plot Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • Even though the Fed Dot Plot is telling the world that rates will fall, the market expects worse.
  • The VIX is elevated, showing it will likely retreat in coming days:

CBOE VIX Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • NASDAQ has pierced below its 200-day moving average:

COMP USA Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Since April 2023, each time it did this, it zoomed higher thereafter.

  • Since November, P/E ratios have corrected by 17%. The forward 12-month P/E ratio for the S&P 500 is 21.2. This is above the 5-year average (19.8) and 10-year average (18.3):

SP500 Forward Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The trailing 12-month P/E ratio is high as well, but it hardly seems like cause for alarm:

SP500 Trailing Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

  • The S&P 500 is only part of the picture. The entire market’s breadth (stocks up vs. down) has been deteriorating for some time now in the ~5,500 stocks we score daily, as shown here:
    1. On November 29th (my birthday) only 35% of stocks were trading below their 50-day moving average. The average P/E ratio (trailing 12 Months) was 40.5 – substantially higher than the S&P 500.
    2. On February 19th, the S&P 500 reached an all-time high, yet 46.9% of our ~5,550 stocks traded below their 50-DMA. The average P/E ratio (TTM) was 38.3. The valuation correction had begun with major indexes making highs.
    3. On February 27th the S&P 500 reached a year-to-date low with 60.4% of our universe trading below their 50-day moving average. The average P/E ratio (TTM), for our universe was 35.3.
    4. March 6th had 66% of stocks trading below the 50-DMA and the average P/E as 33.6. This means a valuation correction of -17% has taken place.

Few people like volatility, but it’s part of the game. Ironically, investing opportunity often looks like gloom and doom. Fear paralyzes us, especially when it comes to our wallets and portfolios. But the reality is that there is a correction happening right now, and that is a good time to find great stocks going on sale.

Sales like this don’t usually last very long.

“Men… go mad in herds, while they only recover their senses slowly, one by one.” ― Charles Mackay

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Most of the Trump Tariffs Will Not Be Inflationary or Permanent

Income Mail by Bryan Perry
Buy When There Is Tariff and DOGE-Cut “Blood in The Streets”

Growth Mail by Gary Alexander
The Magic Formula for Creating Budget Surpluses (Let’s Do It Again!)

Global Mail by Ivan Martchev
U.S. Stocks Are Ripe for a Rebound

Sector Spotlight by Jason Bodner
Are We in the Midst of a Bubble Mania (the Madness of Crowds)?

View Full Archive
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About The Author

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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