Rebuilding the Wall of Worry
At the start of the year, one of the topics we routinely discussed in our investment committee meetings was the unsettling optimism that had found its way into markets. After two back-to-back years of 20%+ returns, Wall Street strategists, on average, raised their year-end 2025 price targets on the S&P 500 by 20%. As the saying goes, “sentiment follows price”.
A lot can change in two months. At the end of February, the AAII Investor Sentiment Survey registered one of its most bearish readings in 20 years. Over 60% of respondents to the survey said they were bearish on the direction of the stock market over the next 6 months. Prior instances of >60% bearishness occurred near major market lows in 2009 and 2022.
The bearishness that initially registered at the end of February has remained stubbornly high through March, with more than 57% of respondents bearish for four straight weeks. The average bearish percentage over the life of the survey is 31.04% with a standard deviation of 9.75%. Thus, the last 4 weeks of bearish sentiment are statistically rare.
The S&P 500 dropped about 10% since the initial >60% bearish sentiment reading was published but has since recovered some of those losses. No one knows if this current market sell-off is simply a healthy reset or the start of a more significant bear market decline. What we do know, however, is the following:
- The extreme optimism just two months ago was unsustainable; and
- It is perfectly normal and expected for extended markets to give back gains, even while the long-term uptrend may remain intact.
Another topic we routinely covered in our 2024 investment committee meetings was the general lack of volatility in the stock market. This too is a condition that we know can’t last forever.
Based simply on historical averages, our expectation was for a >10% correction in the S&P 500 in 2025. As this data from JP Morgan shows, the average intra-year decline over the last 45 years is 14.1%:
There’s an old saying in markets – attributed to the 19th century banker Nathan Rothschild – that you should “buy when there’s blood in the streets”. Similarly, investors like to say that the market “climbs a wall of worry”. These adages support the contrarian view that when other market participants are panicking and uncertainty is high, long-term investors ought to remain patient with their equity holdings and may want to buy additional stock exposure if they have the capacity to do so.
That’s not to say that the stock market won’t fall further from here; after all, equity markets haven’t even hit an average intra-year decline yet in 2025. But even if the headline news – whether it be about tariffs, layoffs, or war – continues to get scarier, it’s healthy to rebuild the wall of worry for the stock market.
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management
