Bob’s Journal for 3/27
Major Anniversaries Marked in March 2025
March 2025 contained significant anniversaries of major events.
Patrick Henry delivered his “Give Me Liberty or Give Me Death” speech 250 years ago. This year and the next few years will be filled with the 250-year anniversaries of events related to the American Revolution.
The month contained the 60th anniversary of the civil rights march that began in Selma, Alabama. The march was met with violence along its route and is known as “Bloody Sunday.”
This month also had the 25th anniversary of the peak of the technology stock bubble, also known as the Dot Com Bubble. The S&P 500 peaked on March 24, 2000, after rising 14.6% over four weeks.
The rise of stocks related to the new technology seemed relentless but suddenly hit a wall.
The S&P 500 declined 25% in the next 12 months. The index hit bottom with a 49% loss in October 2002. The S&P 500 didn’t recover its losses until just before the pre-financial crisis peak in 2007 and didn’t fully recover the losses until 2013.
The technology-heavy Nasdaq 100 suffered more significant losses and took longer to return to the Dot Com Bubble peak.
This month also is the fifth anniversary of the World Health Organization’s declaration that Covid-19 was a pandemic. The same month, federal and state governments ordered most businesses to close and pushed many people into isolation.
March 2020 included the beginning of a recession and bear market that were the fastest, steepest, and shortest ever.
All these anniversaries show that improbable and unexpected events not only can happen but do happen with some frequency.
They show the importance of protecting ourselves by avoiding some common mental mistakes. Most people are tripped up by thinking errors such as the recency effect, anchoring, and confirmation bias, among others.
It’s important to resist the temptation to rely primarily on information that supports or confirms what we’ve been thinking or are inclined to believe.
People also are inclined to think that current conditions are normal or the base case, and that current trends and conditions will continue indefinitely.
These anniversaries show that unexpected or unlikely things have a probability much higher than zero of happening. That’s why I always recommend having some diversification and balance in your investment portfolio and flexibility in your financial plans.
You’ll make more by betting on one investment or economic environment, if you’re right. But when the unexpected or unlikely happens, the results often are painful.
IRA Conversions Go Well with Falling Markets
Many people make the mistake of waiting until near the end of the year to consider converting all or part of a traditional IRA to a Roth IRA.
There can be better times to convert an IRA, such as when markets are falling.
All or part of a traditional IRA can be converted to a Roth IRA by rolling over assets from the traditional IRA to a Roth version.
The amount that is rolled over is included in the IRA owner’s gross income as though it were distributed, though it is moved straight from one IRA to another. The owner pays the taxes now in return for receiving tax-free distributions from the Roth IRA in the future.
A market downturn can be a good time to convert a traditional IRA. You’ll be able to convert the same assets at a lower tax cost or more assets for the same tax cost.
Suppose a traditional IRA owner was considering converting up to $100,000 worth of assets to a Roth IRA sometime during 2025. The IRA was invested in risky assets that have led the way down in the recent correction. Now, assets that were worth $100,000 now are worth $90,000 or less.
The IRA owner can execute the rollover now and pay 10% less in taxes than he would have a few months ago (or perhaps a few months from now if prices recover). Or he can convert more shares of stock or other assets but still pay taxes on only $100,000.
It’s a good strategy to re-evaluate the IRA conversion decision through the year. When an IRA’s value declines, instead of fretting about the decline in net worth, consider whether it is a good time to execute a conversion.
Market Volatility Shows Risks of Leveraged ETFs
A number of investors are learning the math behind leveraged ETFs the hard way.
Leveraged ETFs are funds that attempt to return a multiple of a given index or asset. Most of the leveraged ETFs say their goal is to earn either two times or three times the asset’s return. They’re known as 2X or 3X ETFs.
Most leveraged ETFs use options contracts to execute their strategies.
Many investors read the descriptions of the leveraged ETFs and believe there’s a fixed relationship between the return of the underlying asset and the ETF. If the asset declines 10%, the 2X ETF will decline 20%.
But the ETFs or options work that way only over short periods. Leveraged ETFs are for very short-term investing only.
Consider this recent data from The Wall Street Journal.
The leveraged ETF with the most assets is ProShares Ultra QQQ (QLD), which tries to generate three times the return of the Nasdaq 100 Index.
On one recent day, the ETF did exactly that, rising three times the percentage the index increased. For the year to date, QLD is down 9.92% while the standard QQQ lost 3.88%.
But since the end of 2021, the index is up about 20% while the fund has lost more than 25%, according to the Journal.
In down markets, leveraged ETFs tend to lose more than the underlying asset, often much more than the asset, and it is difficult to recover from those losses. In the 2022 bear market, Ultra QQQ lost more than 80% from the peak to the bottom.
An ETF that aims to deliver twice the return of the stock of Strategy (previously known as MicroStrategy) reached a high in November 2024. Recently, it was down more than 80% from that high. A similar ETF based on Tesla stock also has lost more than 80%.
Investors who want leveraged returns should study options investing before buying any of these ETFs. Then, they’ll probably realize either this type of investing isn’t for them or that they would be better off buying and managing options contracts themselves.
The Data
The PMI Manufacturing Flash Index was 49.8 in mid-March, down from 52.7 at the end of February.
The PMI Services Flash Index rose to 54.3 in mid-March from 51.0 at the end of February.
The PMI Composite Flash Index increased to 53.5 in mid-March from 51.6 at the end of February.
The Leading Economic Index from The Conference Board declined 0.3% in February, which followed a 0.2% fall in January.
The index dropped 1.0% over the six months ending February 2025. That’s less than half the 2.1% decline of the previous six-month period from August 2024 to February 2025, suggesting economic growth improved a bit, and a recession isn’t likely. The Board expects the economy will grow 2.0% or less in 2025.
The Consumer Confidence Index from the Conference Board dropped to 92.9 in March from 100.1 in February.
Both the Present Situation Index and Expectations Index declined. But the Expectations Index declined much more to 65.2, its lowest level in 12 years.
An Expectations Index below 80 usually signals a recession is ahead, according to The Conference Board. But the Expectations Index was below 80 for much of the time since early 2022.
The Philadelphia Fed Manufacturing Index fell to 12.5 in March from 18.1 in February.
The employment component of the index reached its highest level since October 2022, while the prices paid component reached its highest level since July 2022.
The Richmond Fed Manufacturing Index was negative 4 in March, down from positive 6 in February.
Durable goods orders rose 0.9% in February, following a 3.3% increase in January.
But after excluding defense and transportation orders, which is considered a good proxy of business investment, orders fell 0.3% in February, the first decrease in four months, after rising 0.9% in January.
Existing home sales increased 4.2% in February after falling 4.7% in January, according to the National Association of Realtors.
New home sales were 1.8% higher in February after dropping 6.9% in January, according to the Census Bureau.
The S&P Corelogic Case-Shiller Home Price Index said home prices increased modestly in January, rising 0.1%. The index declined 0.1% in December.
Over 12 months, the index increased 4.7% through January and 4.5% through December.
The House Price Index from the Federal Housing Administration was 0.2% higher in January after rising 0.5% in December. The 12-month increase in the House Price Index was 4.8% through both January and December.
New unemployment claims increased by 2,000 to 223,000 in the latest week.
Continuing claims, which lag a week behind new claims, decreased to 1.892 million from 1.859 million.
The Markets
The S&P 500 rose 2.88% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.43%. The Russell 2000 increased 2.21%. The All-Country World Index (excluding U.S. stocks) lost 0.45%. Emerging market equities fell 1.02%.
Long-term treasuries lost 1.05% for the week. Investment-grade bonds declined 0.03%. Treasury Inflation-Protected Securities (TIPS) added 0.39%. High-yield bonds gained 0.61%.
On the currency front, the U.S. dollar gained 0.92%.
Energy-based commodities jumped 1.45%. Broader-based commodities fell 0.12%. Gold declined 0.49%.
Bob’s News & Updates
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