Market thoughts March 4, 2025
- Mark Carlton
- Mar 4
- 4 min read
Market thoughts March 4, 2025 by Mark Carlton, CFA®
Dr. William J. Bernstein, Ph.D., M.D., a retired neurologist, and principal in the money management firm Efficient Frontier Advisors. He is also the author of several bestselling books on finance. In a 2021 MiB podcast, he made this observation:
“To the extent you succeed in finance, you succeed by suppressing the limbic system, your system 1, the very fast-moving emotional system. If you cannot suppress that, you are going to die poor.” [1]
Trademark Thoughts: Probably not, but you will almost certainly experience disappointing investment returns.
“Two years ago, the concentration of the U.S. stock market in its largest companies looked high compared to recent history. Today, some might say market concentration appears really high.”[2]
Trademark Thoughts: Huge outperformance from either growth or value hasn’t persisted historically. Gravity and mediocrity eventually catch up. Russell 1000 Growth is the worst performing of the three indices year to date.
From Bloomberg’s Money Stuff (Matt Levine):
“We talked last week about a paper by law professor Sue Guan, about how securities law does not really contemplate the modern reality of people buying stocks for non-financial reasons. I wrote: “If financial markets are increasingly a game, if what matters are not business fundamentals but memes and influence, then maybe nothing is securities fraud.”[3]
With memecoins — which are not even securities — this is even clearer. People want to buy memecoins because Dave Portnoy tweeted about buying them. He bought memecoins, tweeted about buying them, and sold them for a profit. There is nothing else going on here, so there is nothing for anyone to be deceived about; if there are no material facts, then nobody can be deceiving anyone about any material facts. “I don’t even know what I’m doing with my life,” was Portnoy’s takeaway from the experience, and mine too."[4]
Trademark Thoughts: A lot of what has gone on in financial markets over the last few years owes more to the area of psychology than to economics. If you buy something that has only “other people are buying it so the price is soaring” as an investment rationale, you have only yourself to blame if it fails.
Interesting and a bit scary …
Historically, when the Fed funds rate has dipped below the money funds rate, stock prices have not done well. This is a warning sign.
On the current stock market sell-off: One can spot the conditions that suggest a higher level of risk, but one cannot predict when others will come to the same conclusion and act on it. Since the 2020 Covid-crash, stocks have done quite well as measured by the capitalization-weighted market indices, but the average stock has not done that well. These situations resolve themselves one of two ways – either small caps rally to catch up or large caps falter. Post-election there was a month-long surge in small cap stocks that rapidly reversed itself. Again, not a great sign. That said, however, betting against the largest 7 stocks has really hurt returns in recent years so one isn’t going to sell because the market might go down. One waits for confirmation. Confirmation isn’t a 5-8% plunge in stock prices – those happen frequently. Confirmation is a meaningful drop, a weak recovery, and a plunge to a level lower than the previous low. We aren’t there yet. More often than not, the plunge creates value and the market regains its “footing” and eventually a new high is recorded. Until the market decline is confirmed, we are looking for a rebound. But given the extremely unsettled macro environment – tariffs, layoffs, etc., we are going to have a short leash.
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