By Clint Gharib, AIF®, CFEd®
2025 Q2 was nothing short of stellar for many areas of the stock markets both in the US and abroad. This year so far, the markets have really divided facts versus feelings in regard to investors. Sadly, though, there was no shortage of financial pundits and talking heads repeatedly in the media yelling ‘run to the hills’ or ‘get out of stocks’ or worse, fear fear-mongering that collapse was all but certain in Q1. You’d think after 35+ years managing money that I would no longer get ruffled by the crowd that repeatedly seems to overreact to headlines. As an advisor working in a fiduciary capacity, it really upsets me when I see emotions pandered to as clarity in the market. Too many investors were scared out of the markets because of emotions, either their own or those guiding them. I have long said that emotions are to investing like drinking is to driving: a TERRIBLE mix.
In my Market Update “Damn the Torpedoes” before the selloff in Q1, I said, “I see the current worry about President Trump’s tariffs to the markets as the long-submerged torpedoes. The media has been filled with conjectures over when, what, where, why and how much they will be. Damn the tariffs, Earnings ahead… Thus, to me, US corporate earnings forecasts are the most important variable for navigating through the current ‘minefield’.” Once the sell-off took hold in March in my Market Update “Thanks for the Gumball,” I said, “Currently I see the tail winds that have been driving stock gains in general remain: interest rates, earnings results & forecasts and cash flow. Do not think that means that I am just comfortable and fully invested. On the contrary, I am closely watching and assessing economic data amongst various reports and levels. So far, I can honestly say market action since November has not been outside what I was expecting. We have not seen anything yet beyond a normal profit taking correction”.
Legendary investor Warren Buffett is quoted as saying, “You want to be greedy when others are fearful. You want to be fearful when others are greedy.” This is easy to say and hard to execute in the midst of a market decline, but like the lyrics of one of my favorite songs “Fear is a Liar” by Zach Williams, “Fear, he is a liar, He will take your breath, Stop you in your steps, Fear, he is a liar, He will rob your rest, Steal your happiness, Cast your fear in the fire, ‘Cause fear, he is a liar.”
Fear works both ways. Now I see too many on the other side rushing to buy at peaks. If you missed out on the rally in Q2, I urge you not to rush all-in now. My experience has shown me it is folly to try to time the markets with all-in or all-out approach. Instead, I encourage investors to look even closer at the data, whether that be for a particular company, sector or market (look both ways before crossing the street, so to speak). It seems likely to me that there could be another sell-off, especially profit taking, in the coming months, similar to what we saw this past March. Q3 is historically known for market turmoil.
While I think there could be a sell-off swift and temporary like March, I believe it will be to a much lesser extent, barring some major geo-political surprise. So it may be prudent to take some gains from the recent strong rally. This does not mean sell your winners blindly, rather like cutting off unfruitful branches on an apple tree and pruning those that are fruitful to make the whole (portfolio) more fruitful. I remain confident in my outlook due to the tailwinds for stocks still in place: interest rates bound in a tight range, many corporate earnings forecasts continue to be solid, and inflation has stays stable and cash flows remain generally robust.
In summary, use facts over feelings with your investing. The recent rally looks ripe for profit taking in Q3 so it may be prudent to ‘scrape some cream off the top’ and look to use short-term selloffs ahead of what I expect to be a positive winter for earnings.
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