April 9th, 2025
Dear Investors,
The market takes the stairs up and the elevator down. This last week’s selloff in the S&P 500, Nasdaq, and other major equity indices is a clear example of that. But what sets legendary investors apart from the pack is that they choose to view corrections of this sort as an opportunity instead of a setback.
“What you need to know about the market is that sometimes it goes down. If you’re not ready to deal with that you shouldn’t own stocks. And it’s good when it happens. If you like a stock at $14, you should love it at $6.” – Peter Lynch
Although the market was already approaching corrective territory starting in March, the major selloff came following President Donald Trump’s announcement of “Reciprocal Tariffs” after the market closed on Wednesday, April 2nd. The initial reaction was actually positive, with the SPY ETF gaining 1% in the after hours market, but quickly correcting to the downside and falling by over 3% in the same extended session:
The bloodbath continued into the end of the week, with the S&P 500 closing down almost 5% on Thursday and nearly 6% on Friday, marking the largest single-day selloffs since the 2020 Pandemic.
In statistical terms, Thursday’s decline represented a -4.2 standard deviation move and Friday a -5.0 standard deviation move. If we make the assumption of a normal distribution of stock returns, these moves should only occur 0.0013% of the time (1 in 77,888 days) and 0.000029% of the time (1 in 3,478,549 days) respectively. The assumption of normality of asset returns is an oversimplification that even most quantitative analysts admit is faulty – clearly the market actually has down moves of this size more often than the Gaussian distribution would predict. Still, it is interesting to see things in these terms instead of the absolute price moves reported by most financial news outlets.
“The best time to buy is when there’s blood in the streets.” – Baron Rothschild
Since 1928, there have been 22 drawdowns in the S&P 500 of 10% or more. These are known as corrections. Of those, 12 were actual bear markets – declines of 20% or more. Corrections are a natural part of stock investment and occur about once every two years. Bear markets, although a little bit more rare, are still part of the investment cycle and have historically occurred about once every six years.
Although bear markets can last for years, there has never been one we haven’t recovered from. Don’t forget that even though the Great Depression extended to 1939, the market actually bottomed in 1932. As Buffett would say “Don’t bet against America”. It doesn’t matter what your political beliefs are.
Bond, Treasury Bond
Trump’s Tariff Talk and the following selloff in global equity markets also triggered an immediate flight to quality in safe haven assets, specifically U.S Government Bonds. Although the Treasury Market has actually suffered since the first Fed Rate cut back in September, long-term yields have declined significantly since the start of the year.
10-Year Treasury Yields declined 8.9 basis points on the Thursday following the announcement and another 3.8 basis points the following Friday. And while most tech billionaires lost massive chunks of their fortunes last week, one oracle stands above all else.
Warren Buffett’s Berkshire Hathaway has been sitting on a massive $300 Billion Cash pile. When trading opened on April 3rd, BRK hardly budged. Although the market caught up to them a little bit on Friday, their decline was nothing compared to the larger indexes.
Land of the Rising Yen
After two and a half decades of unconventional monetary policy that led to stagnation and downward pressure on growth and prices in Japan, the country is ready for a shift and poised for growth. In April 2023, the BOJ reviewed its failed monetary policy over the last 25 years. Following their review, Japan plans to return to a normalized monetary policy, ending an era of negative interest rates and yield curve control. Japan saw its largest wage growth in two decades in 2024 and expects 2025 wages to increase another 5.1%. As a result of the wage growth, Members of the BOJ saw an increase in private consumption and corporate profits. As the BOJ begins to unwind its balance sheet and a hawkish rate policy, we anticipate a long-term appreciation of the Yen against the Dollar. Additionally, as the new generation of Japan joins its workforce, we expect these new policies will incentivize spending and investing that the previous generations shied away from, making a favorable backdrop for Japan’s equities that trade at a discount to U.S Equities.
It Doesn’t Get Beta Than This
This is the time to be on the hunt for discounts, and for active traders to shift from a neutral or negative beta portfolio to a positive one. Even with the afternoon rally on April 9th, only 22% of stocks in the S&P 500 are trading above their 100-day moving average.
Although short-term market fluctuations will never be predictable, investors with a long-term time horizon should very much consider taking advantage of the opportunities Mr. Market presents them with.
Sincerely,
Skylar Harding, CFA – Chief Investment Officer, OceanAir Wealth
Maxwell Fischer – Investment and Trading Analyst, Sonic Capital Group
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