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Stocks had a bad week last week.

Sell everything, grab some canned peaches, and head for the hills to your Unabomber cabin?

Let’s not get carried away. I, for one, have never been so discombobulated about the market in my life.

Facts:

• Economic data are deteriorating.

• Tariffs are bad.

• Trump is not targeting stocks like he was in his first term; he is focused on collecting external revenue, if it exists.

• The housing market looks very iffy here.

• The usual stuff about the massive numbers of people who own stocks and the extreme concentration of the index.

• Private equity and private credit remain a massive bubble that could blow up the world.

But! Also:

• Sentiment is already terrible.

What? It’s true. Whether you look at the AAII numbers or the Fear & Greed Index, sentiment is already terrible just as a correction is getting going. I have never seen that before. Now, sentiment is relative—clearly sentiment is not where it was in March 2009. But by and large, professionals are not bullish. Retail is still bullish, but they’re the last to know.

Someone pointed out to me today that the Nasdaq is down since the election. Negative. All the election gains… gone. Remember what I said about a month ago?

Biden was:

• Good for stocks;

• Bad for bonds;

• Good for the dollar.

Trump, so far, is:

• Bad for stocks (check);

• Good for bonds (check);

• Bad for the dollar (when he’s not barking out tariffs).

So, What Do You Do Here?

Do you get short? Get long? Put on some 10-way complex options strategy? Buy commodities (that isn’t working either)? Buy gold (also not working)? Grow turnips in your doomsday prepper garden?

I have been doing this for 26 years, and you probably expect me to have an answer. I don’t have an answer. I am completely stumped. I will tell you one thing about bear markets: It’s not so much that in bear markets stocks go down. If it were that simple, it would be easy to make money off bear markets. Bear markets inflict pain. The stocks you are long go down, and the stocks you are short go up. The bulls get killed, the bears get killed, everyone gets killed. That’s what a bear market does—it destroys everyone’s capital.

The best thing to do in a bear market is to de-gross—take down exposure. Sell this, sell that, sell everything you can except for the stuff you’re sure that you can hold for the long term.

But like I said, sentiment is already terrible, and bull markets don’t die easily. Also, are we really sure that now is the time?

I am paralyzed for really the first time in my career.

But I think the answer is to de-gross. Take trades down. You can always put them back on later, which is a pretty good thing to do any time you don’t have a good feel for the market. You don’t have to be fully invested all the time.

Fully Invested

There is a thing about being fully invested—if you are fully invested, you can’t take advantage of opportunities in bear markets. Say this turns into a bear market. Stocks will get cheap. You will want to buy some cheap stocks. You can’t buy cheap stocks if you don’t have cash. Speaking of which! Warren Buffett has spent the last two years raising lots of cash and creating the world’s biggest Nebraskan money market fund. If that isn’t a sign, I don’t know what is.

I will say one thing about the tariffs. Trump is many things, but he is not stupid. He sees the effect that tariffs are having on the stock market, the same stock market that he was cheerleading higher at every opportunity from 2016–2020. Trump doesn’t strike me as the kind of guy who changes his mind easily. But he is not deaf to criticism. If a narrative develops that the economy was trucking along just fine under Biden, and Trump takes over and everything goes to hell, I have a feeling that his dreams of 100% tariffs will not be realized. Everyone, even Trump, has their point of maximum pain. But the point of maximum pain is probably 1,000 points lower in the S&P 500.

Anyway, not to get all doom and gloom, but now is probably a good time to cut risk. Do not have endowment effect. Do not have nostalgia about your investments. Your investments don’t know or care about your feelings toward them. Take the gain, take the loss—whatever it is—and move on. Or you could do the “stocks for the long run” thing, ride it out, go through a lot of stress, and you’ll probably be happy a few years from now. Probably.

Jared Dillian, MFA