March 28, 2025 – In today’s Smart Macro segment of the Financial Sense Newshour, Chris Puplava discusses the current state of the stock market amid rising uncertainty. With the S&P 500 now seeing another risk-off move and credit markets signaling trouble, Chris dives into key indicators like credit default swaps, investor positioning, and sentiment surveys to explain why caution is warranted. He highlights the risks of tariffs, slowing job growth, and a potential market rollover, with parallels drawn to past downturns. For investors navigating these volatile markets, Chris offers insights into managing risk, raising cash, and the outlook for precious metals. A must-listen for professionals seeking actionable market analysis.
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Charts discussed in today’s show:
Transcript
Cris Sheridan:
Well, on the day that we’re talking, it’s March 28th, a Friday, the S&P 500 is down a little over 2%. So it’s definitely a risk-off day. There was a bounce off of the lows, somewhat of a relief rally, and all those gains are apparently being given back. We’re going to talk about the outlook for the stock market with Chris Puplava, our chief investment officer here on today’s Smart Macro edition of Financial Sense Newshour. So, Chris, you sent me a whole bunch of charts. We’re going to post these where this interview is located on Financial Sense, so all of you can follow along and take a look at these. But what is your outlook on the S&P 500, the US stock market more broadly?
Chris Puplava:
Well, we did get oversold, I would say, a couple of weeks ago. It was a very fast pullback in the market. I think it was one of the fastest 10% corrections the NASDAQ has seen in quite some time. And when you looked at a couple of measures like the American Association of Individual Investors, and you look at the percent bulls and bears, it was pretty extreme. However, you know, to me, Cris, it’s not just as important what people say, it’s what they do. And when you look at the actual allocation to equities in the AAII survey, it was a case of, you know, watch what I do, not what I say, because they really didn’t lower their allocation. So they may have felt extremely bearish, but they weren’t positioned that way. And what matters in the market is positioning. That’s what ultimately matters—how are you positioned? When you’re overly defensive, you have a ton of cash that can mark a bottom. When investors as a whole are overly invested and there’s nothing really left to spend, then that could be closer to a top, and there are no more incremental dollars coming into the market. So, you know, I know some people thought things were extremely bearish. I wouldn’t really say so. And when you look at our professional individual investment managers, there’s the NAAIM survey, so North American Association of Individual Investment Managers, and that one looks at their relative positioning, and it was nowhere close to levels that had marked prior bottoms or significant ones, such as in ’22 or even the bottoms we saw in ’23 and ’24. So I wouldn’t say we were as washed out as some are arguing. And what is concerning me is looking at credit spreads. And whenever I see a divergence between the message from credit spreads versus the message from the stock market, usually to me, it’s the stock market that gets that wrong. And what I like to look at, looking at the credit markets, one of my favorites is looking at credit default swaps. So that’s the risk of default, whether you’re looking at the junk bond market or the investment-grade market. And I look at both and their collective message. So we started to see credit default swaps begin to worsen starting around roughly mid-February, which is when the market peaked, and the credit spreads or default swaps started to widen, and they rose substantially all the way up until about the March lows in the stock market. So as the stock market has rallied, credit spreads have come in a bit. But what I’m noticing the last two weeks is that that temporary rally that began in the middle of March in credit spreads is completely gone. And not only have they given back that recovery, but they’re now hitting new highs, which is arguing the market should be hitting new lows. And when I look at where credit default swaps currently are in junk and investment grade, they’re basically at levels last seen at the August lows of 2024. And back then the S&P was at 5200. So, you know, it’s not a perfect relationship, but it does kind of argue that there could be another, you know, 7-8% downside from here. And obviously we’ve got a lot of catalysts going into next week. You have the March jobs payroll report that will be really particularly watched to see if we start to see the impact from DOGE. Do businesses just completely freeze up hiring because of the uncertainty with tariffs and possibly see maybe even a payroll decline? And then secondly, obviously the fallout from tariffs—Trump’s deadlines from his department heads to give in their various reports on tariffs and the reciprocal tariffs will be launched. What’s unknown is what our trading partners are going to do, and once they announce theirs, what’s Trump’s impact going to be? Our response? Is he going to add even more tariffs and basically one-up them? So with all of this uncertainty and the potential for the US economy to really start to slow, particularly with employment, I think there is that risk that the market could roll over. Now, if tariffs aren’t as bad, if the allies don’t retaliate and they come to some agreement, if jobs aren’t as bad as thought, well, then I think that downside, obviously, it could start to diminish. But that is the risk—that there is that potential for further downside going into April.
Cris Sheridan:
So as you said, you’d like to look at the credit markets as a gauge for assessing the overall risk of the financial markets more broadly. And credit default swaps are insurance against the risk of default; it’s used by actual holders of instruments, but also by speculators. So it’s a good way of assessing, just to see, you know, how are people positioning in these broader credit markets, which are bigger than the stock market, I believe. I mean, it’s essentially insurance against risk of default with bonds and other instruments of that nature. So it’s very large. There’s a lot of sophisticated traders and investors that participate in this market. And currently when you look at the insurance against the risk of default, that has increased—that is, more people are adding insurance in the face of the financial market currently—and that is diverging from the stock market or at least shows that there’s a bit more deterioration behind the scenes than what is even currently reflected in today’s 2% drop.
Chris Puplava:
That’s correct. And you know, when I look at various measures, Cris, you know, the problem is if we do have some negative headlines with tariffs or jobs, we’re not oversold anymore. So there is risk that we could have some renewed price decline before things get washed out again. And there’s a couple of things that I look at. Looking at, you know, the percent of up volume or advancing issues over a 10-day period, that is pretty a little bit above neutral. When you look at the 10-day advance-decline line, I would say that’s even maybe slightly overbought. And when a couple of things I look at is 52-week highs and lows, you know, we’re not at washed-out levels right now. So there’s definitely some room for downside before I think sentiment could get even more bearish, not just in what people are saying but what they’re actually doing—actually selling, reducing their ownership of equities, and increasing their cash levels. Also looking at the VIX futures curve, I don’t really see any fear priced into the market right now. So that is the risk, right, that we do have some downside. And what’s helpful at least is we have a pretty good indication of timing, right? We’ve got the tariff announcement on April 1st and 2nd. We’ve got the jobs one week from today. So we will have, I think, a better understanding of, you know, do we hold the recent lows from March and just trade sideways and kind of build out a bottom, get some good data, some easing on the tariffs, and have a rally from here, or is there potentially further downside—escalation in tariffs, deterioration in job hiring? But we only have really a week to know. So the next time you and I speak two weeks from now, we should have a lot more clarity on the potential downside.
Cris Sheridan:
Where have you found credit default swaps in the credit markets particularly reliable?
Chris Puplava:
They’re really good to me at turning points. And not only that, when, let’s say, you’re in a corrective mode, are you possibly nearing the end? So for example, in 2018, we had that mini bear market in the fourth quarter, and we basically started to rally in late October to November. And what I saw in credit markets is that they weren’t improving at all. In fact, they were deteriorating. And ultimately the market rolled over and confirmed the message of the credit markets. And it was only when the credit markets—finally spreads peaked and started to come in and pressures eased—that the stock market bottomed. And also too, when we had that period between 2015 and ’16, we had some deterioration in growth in emerging markets, in credit. The economy was slowing down, and I noticed a weakening in credit default swaps and other credit spread measures prior to the actual stock market rolling over. So in there too, we had—it was almost like a double-dip decline. We declined pretty significantly, I think around 15-17%, in the summer of 2015, rallied into the fall, and then ultimately rolled over again to put in a bottom in February of 2016. But during that recovery phase, again, I saw the credit markets barely budging, really not recovering much, which told me that we weren’t done, that it was just a relief rally in the stock market that wasn’t going to have legs to it. And that’s what’s concerned me right now. Essentially, right now, what I’m seeing is very similar to the fourth quarter of 2018. And essentially, that’s what I’m worried about—that I’m not seeing the credit markets improve like the stock market has. If anything, they’ve worsened, they’ve deteriorated. So near-term, I am cautious. I think the market could have some more downside, and we should know, though, how much more, roughly in about a week, once we get the jobs report out of the way and the tariff announcements from the US as well as any potential retaliatory tariffs from our allies.
Cris Sheridan:
And I also want to note that through your regular writings on Financial Sense in 2007, you were also very bearish and warning of a major peak in the stock market because the credit markets were deteriorating so substantially compared to the broader U.S. markets. That’s right.
Chris Puplava:
And you know, throughout 2008, we saw, like what I’ve mentioned in the past, the market has an oversold rally, but you just really don’t see credit markets budge very much. And that’s a huge warning sign. We saw that also in 2022. You know, we’d see these very substantial rallies in the stock market from an oversold level, only to see the market roll over and hit new lows, while in the credit markets we’d see, you know, very little, if any, improvement. So, you know, that’s obviously—they’ve really served me well in the past. That’s why I absolutely never ignore the message when it’s a warning. And also too, when you look at the bottom in ’22, we saw for really the last three years, the credit markets constantly improving, showing less stress, and confirming the message we’re seeing in the stock market. So, you know, it’s not just on the bearish side. Even on the bullish side, they’ll confirm the message of the market with improvement. And sometimes, even in a bull market, the market will sell off more severely than you’ll see in the credit markets. And that kind of tells me also that the sell-off could be overdone and the market, you know, take off to hit new highs eventually and be a buying opportunity. So, you know, it works both ways. Whenever I see the market way overdone relative to what I’m seeing in the credit markets, that gives me a little bit more confidence to buy the dip.
Cris Sheridan:
And I do want to hearken back to our late December show of last year. We talked about why we raised cash this week. That was the Smart Macro title of that episode. And you explained, given some of the recent market developments, which would include the deterioration in the credit markets and a number of other things that we discussed at that time, that concerns had risen and that, you know, as the market was basically hitting new highs, we were raising cash, and so we were getting a little bit more defensive. Your message since then has basically been caution on the stock market. So given where we’re at now, you’re still seeing greater risk of downside when you look at the credit markets and some of these other measures that you discuss on a technical basis. So at this point, is it just basically maintaining that cash position, raising cash? Where would you say things are at currently?
Chris Puplava:
Well, I would say we looked at a few of our positions that we had bought over the last six months or so and kind of had some lines in the sand, reassessed—you know, had those catalysts changed? And for a few of our positions, they have. And we did raise a little bit of cash earlier this week as we kind of took advantage of this rally to sell positions where, you know, the fundamental catalyst had changed and warranted us, you know, exiting those positions. So we definitely have raised a little bit of cash. And I would say we’re, you know, roughly still pretty much near neutral. You know, we may go beyond neutral, you know, on the more defensive side. But, you know, it’s just—there’s just too much uncertainty, right? So you might get defensive and, you know, Trump works out deals with tariffs, and then they get rolled back, and then the market takes off. So it’s really tough in this environment to get too far away from neutral, whether you’re, you know, bullish or bearish. You know, some people are looking at this decline as an opportunity to increase risk and take advantage of these price dips, especially in the Magnificent Seven tech stocks. But to me, I think there’s just still too much uncertainty, you know, so you don’t really want to get too bearish or too bullish at this point, in my opinion.
Cris Sheridan:
Yeah. And one other area that we’ve been very bullish on is precious metals. We are at all-time highs on gold. Silver’s also been doing very well. What is your outlook on precious metals? Because this has been an extraordinary bull market.
Chris Puplava:
Well, you know, you have central bank buying, you have finally some buying in ETFs from ETF retail investors. And what gold thrives in is uncertainty. And we clearly have that. When you look at the US Economic Policy Uncertainty Index, it’s the highest level we’ve ever seen—even higher than, you know, during COVID or even Trump’s first term when he was launching tariffs back then. So as long as uncertainty remains high, I think that is going to cause gold to remain well bid. Central banks there too are still buying. So to me, I still think there’s probably more upside than downside to gold. But if we do get some clarity on Trump’s tariffs, that could hurt gold as you remove some of that uncertainty. So that’s definitely probably the biggest near-term concern for gold—is we work out the uncertainty regarding tariffs. But you know, again, as of right now, that’s still a rising uncertainty versus a diminished one. You know, there’s still a lot of flip-flopping, and it’s still yet to be seen, you know, what Trump does once he gets all these reports and does reciprocal tariffs next month.
Cris Sheridan:
Yeah. And Liberation Day is coming, as he refers to it, next week. So we’re going to see that April 2, which will include the recent announcement of the 25% tariff on all auto imports. And so we’ve seen this week—we saw a big hit to GM and a number of other auto manufacturers who still heavily rely on parts from Canada, Mexico, China, all over the world. Tesla was not affected nearly as badly because they have some of the most American-made cars—especially the Tesla Y is the most American-made vehicle on the road with the largest amount of labor and parts that are developed here domestically. But as you’re saying, still a lot of policy uncertainty. And I mean, given this week’s announcement, we’re moving incrementally towards greater protectionism, more tariffs, and not the opposite. So this is affecting the business community—every CEO saying how difficult this makes their job.
Chris Puplava:
That’s the thing. I mean, imagine being a CEO, CFO—you have no idea what the game plan is regarding tariffs. You’re going to sit on your hands. Even as an investor, you’re going to sit on your hands. So I think investors, consumers even, are, you know, given all this uncertainty and even impacts of DOGE, kind of sitting on their hands. When you look at footstep traffic, that’s really starting to decline in a whole bunch of different retail categories, and you know, to me, that’s also the potential for a market rally—is all this cash sitting on the sidelines, you know, whether it’s businesses, consumers, or investors. But you know, until we get to the other side of that fence, you know, to me, I think caution, defense makes sense.
Cris Sheridan:
All right, well, Chris, I want to thank you for coming on and giving us an update. Again, you told us late last year when the market was putting in a peak, you know, that we had raised cash because of a number of these different metrics and charts that we are going to post where this interview is located on Financial Sense, if you want to take a look at those. But this is part of the investment process, what you use to gauge risk. So you made a call late last year. With that said, if any of our listeners would like to come on board, take advantage of our financial planning or asset management services, what would be the best way to get in touch with you and speak with you about some of the ways that we might be able to assist?
Chris Puplava:
They could give me a call at 888-486-3939, or they can email me at chris[dot]puplava[at]financialsense[dot]com.
Cris Sheridan:
Well, once again, we’ve been speaking with our chief investment officer here at Financial Sense Wealth Management, Chris Puplava. Chris, I look forward to speaking with you in the future.
Chris Puplava:
Appreciate it. And we should have a lot more insight in terms of the market’s intermediate-term direction after we get through payrolls and tariffs.
That concludes our weekend edition of the Financial Sense Newshour. To speak with our financial planning and wealth management team, give us a call at 888-486-3939, or you can also visit us on our website, financialsensewealth.com. If you aren’t already a subscriber to our weekday podcast and would like to listen to more of our content throughout the week, go to FinancialSense.com and hit the subscribe button. On behalf of Financial Sense Newshour and the Financial Sense Wealth Management Team, we hope you have a pleasant weekend.
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