The Weekend Edition is pulled from the daily Stansberry Digest.
Speculators aren't going away just yet...
It shouldn't be a surprise that market fear gauges have swung toward fear in recent weeks. Tariffs, geopolitical uncertainty, and more have investors on edge. And that's showing up in investor sentiment readings...
CNN's Fear & Greed Index is still showing "Fear." And the American Association of Individual Investors' ("AAII") Investor Sentiment Survey has shown more than 50% of folks have been bearish for nine straight weeks – the longest streak since the survey began in 1987.
But even though a lot of people may be skittish, a lot of others are still snapping up stocks.
The "buy the dip" mentality is alive and well...
According to the Stansberry's Investment Advisory team's proprietary money-flow gauge, the public is still pouring money into stocks at levels that mark a warning sign.
At the end of March, the gauge showed that an average of $49 billion had flowed into exchange-traded funds ("ETFs") and mutual funds every month over the past six months. Our team considers anything more than $20 billion to be a "bearish" contrarian indicator...
The public's opinion about the attractiveness of stocks plays a significant role in stock prices. When the public is eager to buy stocks ("inflows"), prices are quickly bid higher. When the public is selling stocks ("outflows"), prices usually become very cheap. That's why we're most interested in buying stocks when the public isn't.
There's a saying on Wall Street that's wise to remember: When the ducks are quacking, feed them. In short, when the public is buying huge amounts of shares, it's time for smart investors to sell. In the year 2000, for example, money flows into stock mutual funds... reached a peak. That was a horrible time to buy stocks.
Fund flows haven't flashed a "bullish" money-flow signal – with net outflows from ETFs and mutual funds – since December 2020 (they also came close to triggering a bullish signal during the 2022 bear market recovery).
And today, folks are not just buying up individual stocks that have been beaten down. They're buying the dip in more speculative investments: leveraged ETFs.
Take a look at this chart from Bloomberg Intelligence (and shared on X by Barchart) showing leveraged long ETF flows through April 18...
Leveraged long ETFs – which offer double or triple the daily return of "regular" ETFs – saw inflows for seven straight weeks. In a single week this month, those inflows totaled $6.6 billion. That was more than double the largest weekly inflows from the past two years.
So not only are folks buying the dip, they're doing it in leveraged long ETFs to try and boost their returns from a stock market rebound.
The leverage in these ETFs means that investors get twice or three times the gains when the funds are going up... and twice or three times the losses when they're going down. These funds are what you buy when you're sure things will go great – not when you're considering the possibility of stocks falling.
So yes, in general, investors are more skittish today than they were at the end of 2024. But we're also still seeing "buy the dip" behavior that you don't typically see at a market bottom.
These Popular ETFs Are a Warning Sign for the Stock Market
A timeless lesson...
We're reminded here of something Stansberry Research icon Dr. Steve Sjuggerud wrote back in a 2020 issue of True Wealth...
The stock market will not bottom when it is all over the mainstream news.
It won't. It can't.
The bottom only arrives long after that... when the stock market falls out of the news completely... when most people have forgotten about Wall Street. Until that happens, stocks can continue to fall.
As Steve explained, what you really want to watch for isn't hatred toward stocks... It's indifference.
At big market bottoms – real "capitulation" moments, when folks give up all hope they can ever make money in the market – nobody wants to touch stocks even if they're sitting on a giant pile of cash.
The problem with (and signal from) leveraged ETFs...
Strong flows into leveraged ETFs are a great sign of a speculative fervor in the market. When stocks are in a bull market, investors can pile into these funds to boost their returns.
But, as our colleague Dan Ferris wrote back in our January 3 Digest, "Buying securities with leverage is a great way to lose a lot of money fast." And their popularity among investors is similar to what happened in the run-up to the stock market crash of 1929.
From that Digest...
Back then, many investors were little more than gamblers. They bought stocks on margin with as little as 10% down. So they could buy $100 worth of stock for $10 in cash. If the stock went up 10%, they'd double their initial investment. But if it fell 10%, they were wiped out.
So the recent inflows into leveraged long ETFs are still a warning sign for stocks – especially if the correction in the S&P 500 drags on (or even enters a bear market). As Dan concluded in that Digest...
Folks don't seem to understand that, yes, leverage offers the possibility of much higher returns than non-margin trading... but it also has a much higher likelihood of financial ruin.
Again, we're not seeing the kind of surrender from investors that we typically see around market bottoms. Folks are still piling into stocks. And leveraged long ETFs are still seeing huge inflows as folks look to buy the dip.
That's a reason to be cautious today... and at the very least, to expect some more volatility if today's market fears persist.
But we don't recommend panic selling, either...
While we wouldn't recommend buying leveraged ETFs right now, neither should you go "all out" of stocks.
We can't tell you right now exactly when the market will bottom, or if it has already happened. Either way, history tells us stocks are generally higher in the longer run after broad sell-offs like we've just seen.
Beyond Stocks: How Do Tariffs Impact the Economy?
In the meantime, we're getting a look at potential tariff costs...
Earnings season is in full swing, and more than 20% of the S&P 500 just released quarterly reports this week. A few storylines have already emerged...
For one, we've started to get an idea of how tariffs could hurt the industrial sector.
We saw releases from industrial conglomerate 3M (MMM), aerospace giant GE Aerospace (GE), and defense contractor RTX (RTX). All three companies beat Wall Street's estimates for first-quarter results. But analysts were more focused on what the companies had to say about how Trump's new tariffs are affecting their businesses...
3M's earnings outlook for 2025 matched analysts' expectations, but the company warned that tariffs could knock $110 million to $220 million off its projected profits.
RTX's outlook was similar... It kept guidance the same as it laid out in January, but it added that tariffs could hurt revenue by up to $850 million.
Meanwhile, GE left its forecast unchanged. And it added that about $500 million in tariff impact has been included in the guidance (unlike 3M and RTX – which left tariffs separate). GE said that it will offset tariffs by cutting costs and raising prices. Translation: job cuts and inflation.
Altogether, these three companies see a combined $1.57 billion in headwinds to their businesses from tariffs. And we're willing to bet that more companies are going to come out with their first estimates of how much tariffs are going to hurt.
Magnificent Seven Stocks Will Lead the Markets (Up or Down)
Artificial intelligence is in the spotlight, too...
Like the past couple of quarters, a lot of the focus is going to be on what's happening with AI-related spending.
Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), and Microsoft (MSFT) have pledged a combined $325 billion in spending on AI infrastructure for 2025, and the scope of the return on that investment isn't clear.
Until now, these major capital investments have been mostly well received in the market. But there will come a time when folks want a better sense of how the investments will make these companies money and produce lasting revenues.
We'll get reports from Meta, Amazon, Microsoft, and Apple (AAPL) next week.
The timing of this is important for another reason. You see, Elon Musk's operation at the Department of Government Efficiency ("DOGE") has spent the past three months investigating, auditing, and cutting costs across the entire federal government...
And now, Joel Litman and Rob Spivey at our corporate affiliate Altimetry say that we're about to see DOGE Phase II.
It's when the authorities start picking the companies they need to roll out AI across the federal government.
Two big catalysts on the horizon will make this shift play out extremely quickly. And it goes beyond the Magnificent Seven... to companies that are less obvious to most mainstream investors.
Joel and Rob just sat down with a 25-year government insider to reveal the details... and to share how you can position yourself to profit. So make sure you watch the replay of their interview now.
The Magnificent Seven will lead the overall markets from here...
We've called the performance of these stocks this year a "Magnificent Bear Market."
Six of the Magnificent Seven stocks were down more than 20% from their highs as of earlier this week (Microsoft, the only exception, was down more than 19%). This performance has dragged the major indexes down, as they're still heavily weighted toward these mega-cap tech companies.
Even after the sell-off we've already seen, the Magnificent Seven stocks make up more than 29% of the market-cap-weighted S&P 500 and more than 40% of the Nasdaq 100 Index. So, any price swings on the back of their earnings reports can pull markets higher or drag them lower.
As we keep track of the latest on tariffs, Trump, and the Federal Reserve, corporate earnings and the performance of the Magnificent Seven will soon be back on a lot of people's radars as well...
And sentiment around them will likely play a big role in the near-term direction of U.S. stocks.
Good investing,
Corey McLaughlin
Editor's note: Joel Litman and Rob Spivey recently sat down with a special "mystery" guest to outline why two catalysts will have a MASSIVE impact on the stock market in the coming months... whether Elon Musk stays involved or not. The very earliest days of the Trump administration have been leading up to this. And AI adoption is at the heart of it all. Watch the interview to learn how you can position yourself to profit.
