04/03/2025: The House of the Rising Tariff?

Although it has only been about two weeks since we last sent out an update on the current market environment, it certainly feels right to provide some additional thoughts given the recent tariff announcements that have, for the time being, caught many market participants off guard.

So, you may be wondering what the deal is with the subject line of this email...

And yes, you'd be correct if you immediately thought of The Animals' 1964 rendition of the old folk song "The House of the Rising Sun" which, interestingly enough, is also known as, "The Rising Sun Blues."

(more on this later...)

In any event, the U.S. Stock Market (as represented by the S&P 500) is currently down -4.32% on the day at the time of me typing out this note. The NASDAQ is presently -5.49%. 

Being the data-oriented person that I am, it made me wonder just how often such dramatic downdrafts occur and what has historically happened in the months after. As such, I fired up Excel and ran some analytics that haven't been posted anywhere else on the Internet to my knowledge. 

Let's Examine:

How Many Times Has the S&P 500 posted an Intraday Decline of 4% or Greater (since 1950) and what has Happened After?

By my best count, daily declines of -4%+ have occurred 56x since 1950. Today may very well mark the 57th...

In other words, a day like today has occurred in effectively 75% of every calendar year. 

And since that feels a LOT more frequent than I had even imagined, I crunched more numbers to see what has then transpired over the ensuing 1-month, 3-month, 6-month, and 12-month periods.

Without further ado, these are the numbers:

From the above, you can see that 1-month later the average return of those 56 observed -4% pullbacks has been 0.67%. To add some additional color to the various timeframes, you'll see that the figure below the average return is the percentage of times that markets were positive. In other words, for the 1-month average return of 0.67%, markets were at least positive 53% of the time.

What's fascinating to me is just how much more compelling the future returns become as one's time horizon extends. And not only do the average returns go up, but the % of time where markets are positive have increased concurrently. 

Now, back to The Animals Reference:

If you've kept up with my commentary either through or emails or during 1:1 check ins, you'll know that we've been favoring a cautious stance leading up to the present chaos and volatility. And during many of those personal check ins, I've referenced some lyrics from The House of the Rising Sun to explain our disposition. 

Specifically, we've "got one foot on the platform, and the other foot on the train..."

And what that means is that our cautious stance utilizes a variety of thoughtful hedges that are meant to help protect from a protracted downturn without fully sacrificing the upside of a bull market. 

By design, that is exactly what has been playing out recently. We've managed to minimize downside participation through the current weakening, yet remain ready to seek upside participation should the stats that I've just run this morning play out. 

One foot on...

One foot off...

That said, both hands firmly on the wheel. 

If you have any questions or want to learn more, I remain available as we diligently navigate what is before us. 

Whatever the case, your farewell useless trivia of the day is to know that:

The Animals, led by their front man Eric Burdon, recorded that epic song in just one take on May 18, 1964.  

Here it is for your listening pleasure: https://www.youtube.com/watch?v=s_Kecv6eJNM

Warmly, 

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