Why So Bearish Lately?
March 2, 2025
By Robert Wiedemer
Fear Levels Are Very High Even Though the Stock Market Is Doing Fine
CNN’s Fear & Greed Index is at 21, a level that reflects extreme fear. According to the weekly survey of the American Association of Individual Investors, bearish sentiment rose from 40.5% to 60% in ONE WEEK. That’s the largest weekly rise since August 2019.
Why is bearishness so high? The usual suspects are fear of tariffs and a slowing economy. No question those are weighing on the market, especially tariffs, but are they really that scary? The economy isn’t slowing enough to make a big difference on earnings and it’s not at all clear what level of tariffs might actually be implemented and for how long. Only the 25% tariffs against Canada and Mexico would be truly disruptive because of their impact on the internationally integrated auto industry. Last time they were announced, they weren’t even implemented. Even if they are implemented, who knows how long they will last.
More importantly, the S&P 500 is up almost 1.5% for an annualized rate of 9% -- not exactly terrible. And although it has dropped recently, as of Friday it is only down 3% from its recent peak.
So, I ask again, why so bearish?
When the Obvious Factors Don’t Tell the Whole Story, Look for Something Not so Obvious
When the obvious underlying factors don’t tell the whole story, I tend to look for something not so obvious and not very often talked about. The factors affecting the market that people don’t want to talk about are sometimes the most important factors of all. And it’s usually something more fundamental.
From what I can see, the biggest fundamental change in the last few weeks is President Trump’s policy moves regarding the Ukraine war. And the change is not so much his policies but what they reflect. And what they reflect is that it’s pretty clear that Ukraine has lost its war to keep the Donbas and Crimea.
Although that may seem obvious to some, President Trump is making it painfully clear to all. That’s not his goal. His goal is to end the war. But in pushing that so hard right now, he is effectively saying Ukraine is losing and will continue losing.
That’s a huge blow to the US. Many still hope that, as the most recent United Nations resolution said, that Russia should and will withdraw all its forces back to the Russian border. Well, that’s Not – Gonna -- Happen. In fact, it’s doubtful that they will retreat at all. In fact, it’s more likely they will continue to slowly take more of the Donbas until some sort of cease fire is agreed to. President Trump’s actions are making this all very clear to many people who had hoped for a different outcome.
Whether you supported the war or didn’t support it, there’s no question that it wasn’t a big win for the US. Our economic sanctions did not crush Russia’s economy, and our vast high-tech military support did not defeat Russia’s military as was predicted by many on both sides of the political fence.
Lots can be argued about why and who’s to blame. That’s of no concern to this article because it is only looking at the war’s impact on the stock market and it’s not discussing whether the war should have been fought or should have been fought differently. What’s very clear is that it was not a win for the US.
Why is that important to the stock market? The reason it affects the market is that many individual and institutional investors believe that part of the reason the US market is strong is that we have the most powerful economy on Earth. And part of the reason we have the most powerful economy on Earth is that we have the most powerful military on Earth. What happened in Ukraine makes us look less powerful and, hence, the stock market less attractive to many individual and institutional investors.
And, if this analysis is correct, it is easy to predict that the market will recover from this blow. Why? It’s more psychological than actual – our economy won’t really change much at all because of what happened in Ukraine. And the psychological blow will wear off. But not immediately. It’s a big blow, and it could take several more weeks to shake it off. And the bearish sentiment could easily last longer.
Plus, there are undoubtedly more bearish problems ahead, including increasing 10 year interest rates, tariffs, budget disputes and declining consumer sentiment. However, budget disputes will be temporary and consumer sentiment is not always a great predictor of consumer spending.
So, as far as your market worries are concerned, take heart, what is happening now is temporary and, so far, not very significant. But the market’s problems may not be over. Despite an excellent rebound on Friday, bearishness could pull it back down quickly next week.
It’s not over ‘til it’s over but from my analysis, it will be over fairly soon.