by Jason Bodner
April 29, 2025
Survival is encoded into our DNA and affects everything we do at a deep subconscious level.
Some animals have wild ways of reacting to life-or-death situations. Opossums fake their death out of fright. They go full catatonic when threatened. A carpenter ant, when all hope seems lost, will suck in its abdomen and explode toxins out toward their predator – the ultimate self-destructive last act of defiance.
Eels use electricity. Skunks use odor. Humans, however, often don’t know what to do. Sometimes we lash out in an emotional rage. Other times we freeze in indecision. Most of the time we overthink the crisis.
Markets are a great arena for facing other, more serious, life-or-death situations. That’s because our emotions are so deeply entangled with our money. Anyone reading this knows that when portfolios go down, we logically think that’s a buying opportunity, but emotionally we feel defeated. We’re confused.
So far this year, we’ve been confused quite a lot of the time.
The headlines seem to contradict each other, sometimes within the very same minute. Trade deals are imminent, or tariffs are raised, depending on the time of day. Businesses are failing or poised for success.
Markets are just as turbulent, and seeing through the thick fog of uncertainty seems impossible. This wicked new form of volatility is unsettling, uncomfortable, and at the top of the minds of most investors.
Will the future be bleak or bright? Stormy or serene?
It’s hard to not act according to our emotions – by the heart or the gut – in stomach-churning situations like now, but I find that our emotions are a reactionary survival instinct, a relic of our evolutionary past.
It has never worked for me. In fact, decision making using my gut has almost always led me to lose.
When I look for answers, I look at unemotional data. I prefer analysis and letting history be a possible — even probable – guide to what might come next.
I know this is an unpopular position, but my forecast is for sunny skies. Looking to the horizon I see:
- Higher equity prices
- Trade and tariff resolution
- Lower interest rates
- Lower taxes
- …and I see all of this happening by the fall, if not earlier
First let’s visit the data: What caused the market destruction from mid-February to early April is painfully obvious to me. I’ll show you what capitulation looks like, and why it was fueled by margin calls.
First, let’s check in on the Big Money Index (BMI). It plummeted hard. But before it could go “over-sold” on us, the storm suddenly passed and those elevated out-flows just vanished, like a tornado passing by.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This becomes obvious when we look at daily outflows and inflows: Red bars explode and then vanish:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now here comes the practical angle: Should we sell and buy during these rapid swings? Perhaps some geniuses can time these short switches, but I didn’t sell. Nor did my family, neighbors, friends, or anyone I know. I’m willing to bet most of you didn’t sell, either. So, who did? The answer lies in margin calls.
We historically see a pattern in margin debt balances correlated with market performance.
Here is how debt unwinding looked three times, first when the late 1990s internet-bubble popped:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The blue line is the SPY (S&P 500 tracking ETF) and the red line is the dollar amount of credit extended to clients by broker in the form of margin. Notice as it rises, the market rises? And when it falls – so too does the market in lockstep? Here is a second chart, this time from the 2008 Great Financial Crisis:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As uncertainty wanes, the market recovers. It looks almost fueled by the extension of additional margin. This happened starting in 2003, fueling the long bull-run until 2008. Then it picked up again in 2009.
Now we come to the latest example. You can see COVID-19 on the left of the chart. It was a swift collapse of equity prices, almost certainly correlated to margin calls. Then to the right, you can see the latest equity land-slide occurred with a reduction in margin retreating from record levels in January.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Margin fell 6% from January 2025’s all-time high of $937-billion to March’s $880-billion. Certainly, April’s will show a lower number. That is what “forced-selling” looks like. Hedge funds and other investors use leverage to try and beat markets. Tariffs threw an un-modelled wrench into the works, which caused brokers to quickly tighten the credit spigot. This forced liquidations – like it or not. We clearly see the difference comparing outflows from February through the market low compared to after:”
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I have already supplied many studies in this column showing why we should expect positive returns for stocks from here on out, based on similar past market conditions. Volatility should subside and current uncertainty should resolve. Wall Street will eventually find a new fear, but let’s summarize those studies:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
These studies of past similar situations tell us that markets similar to now look great going forward.
We can say: “This time it’s different”, but every time was different. A global pandemic, housing market collapse, and terrorist attack were each very different circumstances, but also very similar, emotionally.
We already see signs of a broad-based recovery in a market bouncing back from its lows, and we also see a very welcome recovery in every S&P sector:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That uniformity of recovery is further indication of a margin-based correction. My belief is that President Trump must wrap up this whole trade restructuring within the next few months – this year, before mid-term election campaigning begins. He can’t risk losing Republican control of the House or Senate.
We already have indications that most countries are willing to negotiate. I saw headlines that India will lower tariffs and more importantly China is easing some tariffs and introduced some exemptions. This is simultaneous to reading that China won’t deal at all until the US lifts reciprocal tariffs! It’s all confusing.
Which brings us to my first point. The best thing we can do now is not run for the hills. Cashing out and waiting for better times is counter-intuitive and could be destructive. Instead, identify great businesses trading at lower prices. Buy low and reap the rewards years from now. That is the basis of investing.
“Success is survival.” – Leonard Cohen
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Tariffs Are Melting Away, But China Remains Stubborn
Income Mail by Bryan Perry
The Fed Should Act Next Week, With a Preemptive Rate Cut
Growth Mail by Gary Alexander
Downbeat Sentiment (and Magazine Covers) are Contrarian Buy Signals
Global Mail by Ivan Martchev
The Stock Market is Sniffing Out More Trade Deals
Sector Spotlight by Jason Bodner
Survival Techniques in a Confusing Market Year
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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