Juggling Dynamite

Yesterday afternoon, news of a 90-day US trade tariff pause sparked jubilation in stock markets. The 9.5% bounce in the S&P 500 was the third-best day since 1950, and other indices followed suit.

Lest we lack perspective, the other two best S&P 500 days were +12% on October 13, 2008, and +11% on October 28, 2008. Both were short-lived: the stock market tumbled for another five months to March 2009, as the S&P 500 halved.

A similar pattern repeated through 2001 (shown below via the Nasdaq 100, courtesy of my partner Cory Venable). The bear market began in March 2000, and included five vigorous counter-trend bounces (marked with red arrows from the left), each lasting for several days to a couple of months, before gravity reasserted itself. By the ultimate bottom in October 2002, the Nasdaq had lost 78% from March 2000 and 62% from the January 2001 rebound top (noted below on far right).

Traditionally, bear markets last 12 to 24 months and do not recover prior highs for years. Individuals should include the potential for such an outcome in their investment strategy and financial plans today. See more food for thought in The Stock Market’s Fear Gauges Point to a Bounce, Not a Bottom:

Even those disciplined enough to sit still will wonder how far this goes and when it ends. The Covid-19 bear market, the shortest in history, probably provides a misleading guide. The government throwing everything but the kitchen sink at it turned sentiment around. This time around, to use the horror-film trope, the call is coming from inside the house.

If this becomes a severe bear market then the bottom will come at the point of capitulation when investors are disgusted with stocks. We are just too recently removed from a positive peak in sentiment and AI optimism.

As we will probably soon relearn, markets don’t go down in a straight line. But they go down a lot more than we might imagine.

Those interested in deep and flexible thinking about tariffs and the many moving parts will find the discussion below with economist Anna Wong worthwhile.

Anna Wong is the Chief US Economist at Bloomberg and previously worked at the Federal Reserve, White House Council of Economic Advisors, and US Treasury Department. I can imagine few people in the world better suited to analyze and forecast the impact of the tariffs.

Yesterday, on news of a US tariff increase for China, Anna and her team updated their impact projections and determined that the hit to US consumption will be more significant than previously estimated.

We calculated that post Trump “put” today, the tariff mix is actually worse —China exports more consumer goods to US than other countries, so boosting that (to 125%) relative to others will boost the hit to consumption goods. pic.twitter.com/Yw9QIgcXqG

— Anna Wong (@AnnaEconomist) April 9, 2025

I’ve continuously pointed out the danger of asset bubbles because they commonly lead to a slippery slope of destructive behaviours, threatening the health and stability of individuals, businesses, and the economy.

After a dramatic wipeout in March 2020, stock prices rebounded into December 2021 before plunging into October 2022. Rebounding again, some sectors finally reclaimed their December 2021 high by January 2024; a few made a fresh high in early 2025, but that, too, was short-lived.

As of this morning, the widely held S&P 500 is -4% year over year and just 6.4% above its December 2021 peak. The tech-rich Nasdaq, which inspired so much mania, is -4.9% over the past year and -3.2% since November 2021.

Canada’s TSX, flat over the past year, is +5% since November 2021.

The economically sensitive small-cap S&P 600 index has fallen 27% since Trump’s election and is down 21% since November 2021.

In short, irrationally overvalued stock markets have performed as history promised, with a wild ride of volatility and miserably insufficient compensation.

Making returns even worse, participants have paid higher management and brokerage fees for the ‘risk-on’ experience, often while taking ill-advised withdrawal rates.

The bad news is that still-elevated valuations suggest further mean reversion is to come.

Continuing to take sober measurements and manage capital responsibly through full market cycles is mentally demanding, and can be unappreciated and mocked during bubbles. In a world full of bad financial advice and get-rich-quick schemes, it’s hard for the masses to steer clear.

Looking for fast-moving vehicles, many jump in with confident drunk drivers who have no brakes. It’s only after inevitable crashes that they see the harm.

I reviewed the setup for the current loss cycle in a Thoughtful Money video with Adam Taggart last November; see, Stocks are the most overvalued in 100 years.

It is never too late to learn from mistakes, but recovery requires enlightenment and resolve to make wiser choices. Yes, we can.

In March, the year-over-year change in new listings (yellow bars below) outpaced sales volumes (blue bars) in all major Canadian urban areas.
See Canada’s homebuyers wait out trade war fallout:

March saw more homebuyers retreating to the sidelines amid growing tariff threats—waiting to see what will happen to our economy next. This drove home resales down materially for a second straight time in many markets—reaching cyclically lows in southern Ontario, which is especially vulnerable to trade turbulence.

Several local real estate boards also reported weaker home prices in March including the Toronto region, Hamilton, Kitchener-Waterloo, Cambridge, Vancouver and Fraser Valley. Even in Calgary, prices flattened.

Prices are getting marked down, but relatively slowly, overall. Many properties are stuck in limbo while sellers hope for a return to the salad days of easy credit and bidding wars.

Property values are coming under pressure as inventories get more plentiful—stoking competition between sellers—while demand is skittish. Bargaining power has clearly shifted in the buyer’s favour in Vancouver, Fraser Valley, Toronto and other southern Ontario markets like Hamilton, Kitchener-Waterloo, St. Catharines, Niagara Falls and Windsor.

Data from Information Technology Systems Ontario (ITSO) and the Toronto Regional Real Estate Board (TRREB) shows that bidding activity on homes in the GTA largely seized up in March:

According to the report, approximately 20 per cent of GTA neighbourhoods with at least five sales were in overbidding territory in March, which is unchanged from February but down from 43 per cent just a year ago. On the other hand, the majority (73 per cent) remained in underbidding territory, with an additional seven percent at asking.

The 2024 Joe Debtor Canadian Consumer Solvency Study is available here; some takeaways:

Mortgage Renewals Financial stress among homeowners is expected to escalate due to higher mortgage renewal rates, potentially doubling the proportion of homeowner insolvencies to 8-10%.

Pre-Construction Market Stress: Struggles in the pre-construction condo market may contribute to rising real estate insolvencies as appraisals fall below original purchase prices. Investors can include any shortfall as an unsecured debt in a consumer or Division I proposal.

Regulatory Changes: New interest rate caps on high-interest lending may accelerate insolvencies by limiting access to emergency credit, a traditional stopgap for distressed individuals. The lack of short-term lending may pull many insolvencies forward.

This outlook highlights the many economic pressures burdening indebted Canadians, which we expect will continue to drive a substantial rise in insolvency filings in 2025.

Escalating financial stress among owners and lenders suggests downward pressure on property prices should continue.