No. of Recommendations: 7
As the nations of the world unleash retaliatory tariffs in the throes of the Great Trade War of 2025, economists wail and gnash their teeth at the erection of breathtakingly large barriers to trade between the US and the rest of the world.
While the S&P 500 hasn't hit the the 20% marker of a bear market quite yet (down 14% in the pre-market action right now), the spiking volatility, plummeting stock prices and economic upheaval seem destined to bring that 20% drop sooner than later.
Small cap value (SCV) dropped past the 20% marker yesterday. I.e. The Russell 2000 is down 22% from it's high point 4 months ago.
https://finance.yahoo.com/quote/IWN/So, by the 20% yardstick, SCV is in a bear market. Being a more volatile asset class than the S&P 500, bears often take the index down far more than 20%. It was down over 50% in the Great Recession bear, almost 50% in the Covid bear, 30% in the random 2021-23 bear.
Purchasing SCV in the lower reaches of its bear market ranges has been a spectacular investment in the past.
Nailing the bottom is not a viable strategy, but raising some liquidity when things are pricey and dicey like they were recently, and pouncing when the bottom indicators like volatility, volume and breadth are firing should yield excellent results.
The Great Trade War of 2025 seems destined to produce a very significant bear market. I doubt that Trump is going to suddenly relent: he's already been saying we may have to get through a recession to reap the rewards of his policy. Recession looks absolutely inevitable now. Prices also will be spiking to reflect the immense new taxes on many critical goods, so the Fed will be in a bind where they can't cut interest rates like they'd want to, to address a rapidly softening labor market, because inflation is high.
It's a real pickle. The trade is/was a pivot from large cap to cash to small cap value purchased when there's blood in the streets, aka major bottom indicator has fired several times and then goes quiet. In a major bear there could well be another stage down after the first major bottom, but holding out for that can get you left in the rear view mirror by a flip to bull, like happened to me in the Covid bear.
I executed a bit of the large cap -> cash part of the pivot a couple weeks ago. No major moves but sold a couple things. Most of my large cap is in BRK which I'm reluctant to sell. It's levitated so far while the market crashed, as a flight to quality kept it at or near all time highs. I may have to lighten up a bit and move funds to the higher value asset class: SCV at a cyclical low. SCV started off this bear market at roughly average valuation, not a bubbly high valuation like large cap, so it's already down into a range that should produce excellent returns going forward, by any normal standard. If one were lucky/good enough to buy the class after another 20% drop from here, the returns should be spectacular.
