April 11, 2025 – Markets are on a wild ride, with massive swings testing even the most seasoned investors. In this episode, Jim Puplava speaks with Craig Johnson, Managing Director and Chief Market Technician at Piper Sandler, to break down the extreme volatility, what it signals for market bottoms, and how investors can navigate the uncertainty. With insights on technical indicators like the 40-week moving average, the odds of a recession, and how sectors like tech and financials might lead a recovery, Craig offers actionable strategies for deploying capital wisely. Plus, they dig into the anomalies in gold, the dollar, and interest rates, and discuss the long-term implications of reshoring and tariffs. If you’re looking for clarity in today’s turbulent market, this is one episode you don’t want to miss.
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Key points discussed in today's show:
- Extreme Market Volatility: Insights into recent massive market swings, including a 2,000-point drop followed by a sharp bounce.
- Key Technical Indicators: Analysis of the 40-week moving average and its role in identifying market washouts and potential bottoms.
- Recession Risk: Discussion on the likelihood of a recession and how markets tend to react during such periods.
- Policy-Driven Bear Market: How trade policies and tariffs have created a unique, non-cyclical bear market.
- Historical Market Rebounds: Examples of rapid recoveries after major sell-offs, including 20%+ returns in past scenarios.
- Sector Leadership: Potential shifts in market leadership, with a focus on financials and tech (beyond the "Magnificent 7").
- Anomalies in Gold and Bonds: Why gold is defying a strong dollar and weak interest rates, and why bonds aren’t behaving as expected in a bear market.
- Reshoring and Manufacturing: Long-term implications of tariffs, supply chain challenges, and the push to reindustrialize the U.S. economy.
- Dividend Opportunities: Strategies to create steady income with high-quality dividend-paying stocks.
- U.S. Debt Risks: Concerns about rising debt levels, refinancing challenges, and their potential impact on markets.
Transcript
Jim Puplava:
Well, to say the market and investors have been going through a roller coaster ride would be putting it mildly. Joining us on the program is bullseye Craig Johnson. He's managing director and chief market technician at Piper Sandler. Craig, when you take a look at some of the extremes that we saw last Thursday and Friday, where we've had, what was it, a 2000-point drop, and then, of course, on Wednesday you had the bounce back. How do you detect that in a chart? I mean, what chart pattern would tell you something like this would be coming?
Craig Johnson:
Well, Jim, it's not so much about a single particular chart pattern, Jim, but when you go back and sort of look at the aggregate of the damage that's been done, you start to realize that with some of the indicators we like to look at, which we call our 40-week technique here at Piper, we look at what percent of our groups are above a simple 40-week moving average. And, Jim, we have 406 groups. What I find is that when you get to a 20% reading, the market's under some pressure, meaning that only 20% of the groups are above the 40-week moving average. Usually, when you get to that level, it's probably a pretty quick ride down to making a washout low. Those washout lows are usually made somewhere around 10% readings. Well, Jim, in this particular situation, we've actually gotten down to 5.3% of our groups above a 40-week moving average. That's a pretty good washout type of level. Does it mean the bottom is in on that day? Not necessarily, but what it does mean is that clients who want to be in equity markets should start thinking about putting some money back to work. What I like to say to people is you don't have to put it all in one day, but you do want to take maybe two or three slices of your money, start putting one slice in on weaker days, and start doing it that way. But, Jim, I'll just say this: when we've gotten to these sub-10% readings, what we have found is that it usually takes about five weeks on average to break below that 10% reading on this indicator for us to eventually get back above 10%. There have been a couple of instances where it's been one week, but for the most part, the median is five. If I look at the forward returns when we hit these sub-10% readings, history would say, going back to 1969, that typically the market median return 26 weeks later is 7.8% positive with a 61% positivity rate. And if you look out 52 weeks later, Jim, you're higher. The median return is positive 18.8% with an 83% positivity rate. So, again, a lot of people were hoping for a pullback in the market, Jim, and more often than not, when these happen, they don't want to step up because they're too concerned. I'm hoping that tools like this will help take away some of that emotion so that people can get involved with the market and perhaps get their timing a little bit more precise than just emotion-fueled trading.
Jim Puplava:
You know, I want to talk about what happened on Wednesday because, you know, I can't remember, Craig, when I've ever seen an upward move in the market to that percentage in a single day.
Craig Johnson:
Yeah, I mean, if we go back and look at 7% daily returns or greater, we went all the way back to 1900 on the Dow, and when we've done that, Jim, we've actually found 25 instances when you've had more than a 7% single daily return. But in the more modern period, because a lot of these periods you have to go back to the 1930s and 1920s to see a lot of this, in the more modern period, I would say we had on April 6, 2020, a 7.73% return. On October 28, 2008, we had a 10.88% return. And then on March 24, 2020, we had an 11.37% return. People probably have forgotten, but that was when the Fed came in and said, "Hey, we're going to cut rates," and they did so in a very rapid fashion. That certainly was quite constructive for markets when we saw that happen.
Jim Puplava:
I want to contrast what you might call this a bear market, that this is more of a policy-driven bear market versus a cyclical or secular bear market. Let's talk about that for a minute.
Craig Johnson:
I 100% agree with you. This is a bear market that has been induced by trade policy in Washington this year. It is a bear market that, at this point in time, seems very different from what you had in 2008-2009, which was driven by credit. This bear market is not induced by some sort of unknown virus and uncertainty about the ultimate outcome from that perspective. This is definitely an environment right now that doesn't need to be permanent; it could certainly be changed as policies are adjusted. When you look at the big move we saw in the market on Wednesday, I think people were looking for some relief, and they certainly got that on Wednesday. But this is more policy-induced, Jim, and I think at this point in time, I don't think it suggests that we have to see this market continue to keep moving lower. I think we will find our footing in here sooner rather than later. Because right now, when I go through and look at all the stocks in the marketplace, this policy-driven bear market is at pretty extreme readings that we don't often see.
Jim Puplava:
What about another issue? Right now, we're talking about pronouncements on tariffs that have caused what we've seen in the market. But what about longer term? What if it takes another month or two to settle this out because there's now talk of probability? I think Goldman has increased its probability of a recession. JPMorgan has increased its probability of a recession. If we go into a recession, we know what happens: earnings go down. What's Piper Sandler's take on a possible recession here?
Craig Johnson:
Well, I usually leave a lot of those calls to Nancy, Jim. Nancy has talked about the odds certainly going up in terms of recession and weaker GDP numbers. From my perspective, looking at the charts, there are a couple of observations I would make. Usually, when you're told you're actually in a recession, Jim, you're usually close to two-thirds of the way through the recession. If I go back and look at prior inversions of the yield curve, going back to the late 1970s, early 1980s, when you have an inversion of the yield curve, usually about 20 months later, ballpark—you're not precise—but ballpark, you're told you're in a recession. At this point in time, that would put you somewhere in the next couple of months. If it says you're in a recession, great, so be it. I'm looking at it from a trading perspective, though, Jim, and saying, okay, the sooner we're told we're in a recession, the sooner we'll probably be out of it. Stocks have already sold off, pricing in a lot of negative news. But the problem right now with everybody raising this recession flag out there—and again, it's not our base case—but with people raising this flag and saying we're going into a recession due to the tariffs, well, what if Washington changes its viewpoint on some of these tariffs? Does that mean they're also going to walk back the discussion that we're in a recession? I mean, that would be the logic of what would have to happen, Jim, but that doesn't seem to be the case. I keep talking to a lot of folks who keep extrapolating the absolute most negative scenario and saying that's their base case. We saw from Wednesday that when something gets walked back, this market is a very compressed spring that seems ready to move fairly quickly to rerate back up. That's the challenge with getting too focused on whether it's a recession or not, Jim. I come back to the charts and look at just how compressed this market is in terms of stocks below 200-day moving averages, new highs, new lows, and a lot of those tools.
Jim Puplava:
I can't believe, Craig, we've been doing some stock screens on dividend yields. I haven't seen dividend yields this high in quite some time.
Craig Johnson:
I 100% agree with you. One of the favorite things I like to do with dividend-yielding stocks is create the paycheck of the month, Jim. I go back and look at electric utilities, and you find the really high-quality utilities with very low dividend payout ratios that have been consistently raising their dividends over the last 10 years. Maybe they've got close to 4% dividend yields. Put that all together for a total return opportunity that's high single digits, low double-digit returns. For those listeners out there, Jim, who like those kinds of things, they exist. Just put them on staggered dividend payment cycles when you pick your stocks, put them into the portfolio, and you can literally create a paycheck of the month.
Jim Puplava:
Well, it's absolutely amazing. I haven't seen yields like this. I mean, we're like kids in a candy store. I want to talk about something else that we've seen here recently, and that is some of the anomalies we've seen. I want to bring up gold, the dollar, and interest rates, Craig. Typically, when you see a strong dollar, you see higher interest rates, and gold is weak. That has not happened. Gold has been on a tear the last couple of years. It's on a tear this year. So that's one anomaly. The other one we've seen recently is that typically, when you see severe sell-offs or a bear market in stocks, you see the bond market rally, and bonds do well. That's not happening. I'd like to get your take on these two anomalies.
Craig Johnson:
Well, Jim, in terms of some of these anomalies, first, with gold, when we've had prior administrations here in the United States decide that any reserves held in the United States could suddenly be seized if somebody doesn't do something correctly or is perceived as not doing so, that money can simply be frozen. I'm not sure why someone would want to keep their reserves sitting here in the U.S. So, I think that's part of the reason why gold has been stronger. People would rather own gold than U.S. Treasuries as that reserve. That was one policy mistake made by the prior administration. Again, not trying to play politics here, but I do think that's a consequence of what happened with Ukraine, Russia, Iran, and others where these accounts got frozen. The second part of this, Jim, is you and I have talked at length about the $36 or $37 trillion in U.S. debt. Right now, with tariffs getting layered on all this debt, and a lot of refinancing of this debt that needs to take place in the next several months, you're at a point where it's a challenging scenario to put tariffs on people and then turn around and say, "Hey, you should buy our debt." I think that's part of the challenge that's starting to be realized by the current administration.
Jim Puplava:
Yeah, because if your assets could be seized, like we did with Russia, and you're seeing that with the BRIC countries, they're using gold for settlement. But by the same token, if we're going to put tariffs on you, then why in the hell would you want to keep your money in the U.S. financial markets?
Craig Johnson:
Exactly, exactly. And again, we're borrowing right now as a country to pay the interest payments. So, there aren't a lot of good options. Jim, you and I have tried to explore some of those options in some of the calls we've had, and as we look through this, what are the great options we have out there to address this debt, pay it down, ultimately reduce it, or roll this debt over? There aren't a lot of great options. You're not going to be cutting entitlements. You're not going to simply raise taxes across the board. That's kind of a tired strategy. So, those are the challenges that come into play. I know a lot of people don't like the tariffs. I prefer free trade. But at the end of the day, we do need to figure out as a country—not as Republicans or Democrats, but as a country—how this debt is ultimately going to be paid back or lowered and how we're going to make these debt payments. Because the reality is, when you look at what is owed per citizen, it's around $105,000. And, Jim, I don't know about you, but I don't think—I mean, a lot of your listeners might be able to do this, Jim—but I don't think everybody in the country is going to be able to write a check for $105,000 to get this debt paid back. And again, it's truly bipartisan debt that is owed.
Jim Puplava:
The thing that really strikes me about this is, you know, the tariffs. We've got what, almost a $1 trillion trade deficit, multiple trillions in budget deficits. And, Craig, we've seen where we've outsourced a lot of our manufacturing, and this came home to roost with supply chain difficulties during COVID. So, whether it's pharmaceuticals or machinery, I can see where Trump says we have to start making stuff. We can't depend on China. And the risk there is that China controls what, 90% of rare earths—not only the raw material itself but the processing—and that's key to technology. So, we're trying to reindustrialize here. I wonder, you know, as you look at what has done well by decades, what this implies in terms of sector rotation or what will do well in the remainder of this decade. Have you looked at that?
Craig Johnson:
Yeah, it's a great question. It's not an easy answer to this question. And again, it may not be perfect, but a couple of different parts I think about with this are: number one, it's going to take a lot longer than people think to bring some of that manufacturing base back to the United States. A lot of intellectual property has been stolen by China. They have then manufactured these particular goods and sold them back to the United States. With those tariffs in place, they were the lowest-cost producer because of that. That's a challenge on the intellectual property side that has to be addressed, Jim. The other part of this whole thing is that the typical world order is sort of over. That was the imported deflation coming in from China over the last 40-plus years. With the reversal of 10-year bond yields, that imported deflation is sort of over. We're going to need to bring some of that manufacturing back home. That's what the current administration and others would like to see done. Even the last administration would like to see some reindustrialization of core goods and products. But all this coming together, Jim, doesn't change the current shape of the world, which is that the U.S. innovates, China replicates, and Europe regulates. That's going to get bent a little bit in this world order, but I don't think it's ultimately going to change. If tariffs can be used to smooth and balance this out a little bit, so be it. But it's going to be a very difficult battle to do that because I think the tolerance for pain among American investors is very low at this point. We're pretty much accustomed to having our cake and eating it too, and I'm not sure that is going to continue.
Jim Puplava:
One of the things, you know, Trump is saying, hopefully, they can get these factories up and running within two years. But, Craig, a lot of the equipment that goes into these factories is still made in China. So, I'm not so sure that we can decouple from China as quickly as the Trump administration wants to because so much—whether it's raw materials, machinery, or manufactured goods—still comes from China.
Craig Johnson:
I'm not sure you need to decouple completely. I mean, we just need to talk about shifting some of that manufacturing back to the U.S. There are lots of examples where China is a single-source supplier of certain goods that go into a manufacturing process here in the United States. If you're missing one of those goods, everything has to shut down and stop. I would say that Apple has made some pretty good moves into making more of their products here in the United States, but they realize it's going to take some time, and they're talking about investing $500 billion into manufacturing plants in the United States. I think that's the right move. Now, the administration should come back and say, "Okay, no tariffs on bringing iPhones in from China," is ultimately what should take place, or coming in from India, if you've agreed to start that manufacturing and go down that road for building those manufacturing plants here. Again, balance it out, not have it be single-source like it's all done here in the United States. Some of it could certainly still be done in China, some of it could be done in India, and some of it could be done here in the United States. Again, diversification is ultimately what should be accomplished with this.
Jim Puplava:
So, if you look at this longer range, let's say the balance of this decade, we're talking about reshoring, bringing factories back here, making stuff here. That's going to change some of the dynamics in the stock market in terms of what companies you're investing in because we're still a consumer-driven economy. I think consumers account for about 70% of GDP. But if you take a look, Craig, at the dichotomy in the market with consumers: if you own a home and you have a 401(k) program, you've done pretty well over the last four or five years. If you don't own a home or don't have a 401(k), times have been a little bit rough for you.
Craig Johnson:
I agree. For all your listeners, there needs to be, at minimum, if you have a 401(k) plan, be participating in it, Jim. There are still a lot of folks I've had conversations with who aren't even doing the minimum match at a lot of their organizations. They definitely need to get into that habit, putting a budget together that includes contributions to 401(k) plans. In terms of owning a house, I think years ago the idea was to get everybody into home ownership to build that wealth up, and I think that's terrific. But it's also driven up home prices. It works pretty well when you have low interest rates. It's going to get more challenging for the youth of today to buy homes and get into homes to build that net worth up. But again, all of this comes back to being able to try to save and constrict consumption so that you can save that money to get into a home. I kind of think about the direction we're going, Jim, to the point of your question. I have a lot of good friends in Switzerland who listen to your show every single week. I have one good friend, Otmar, who'll be listening, and I'm sure he'll comment for us. But a lot of these people in Europe, in Switzerland specifically, have never owned a home; they've been renters. That has always sort of hurt their accumulation of overall net worth. And again, it's very difficult to own a home in Switzerland due to the cost. I kind of fear that in the United States, we're moving in that direction too.
Jim Puplava:
Yeah, I want to go back to the Mag 7. We've seen the Mag 7 dominate the stock market in 2023 and 2024. We've seen a major dip, or I should say a waterfall decline, in some of these Mag 7 stocks. As we go forward, let's say we're pulling out of this downturn, and the markets take off. If there was a sector rotation, where do you think that's going to be? In other words, usually when you get these downturns, you see a shift in leadership. Where do you think that might be coming from?
Craig Johnson:
Well, in the rebound that we saw Wednesday of this week, Jim, it looked like a lot of tech was doing well on that bounce. At this point in time, as I go through and look at my total return, relative strength work, it still leans toward tech, just not the Mag 7. It leans toward some of these services companies and definitely financials. I'd be really nervous about this market, Jim, if financials were not working and participating. I think that's going to be a stabilizing factor for this market ultimately. So, where I've been positioned and telling clients to be overweight is financials, tech—not the Mag 7—and then ultimately into the service companies. I think that's probably the best place to be positioned. If we're to have leadership, I'm not sure the leadership is going to change, Jim, I guess is my point. But I would say financials or tech are probably going to be two of the stronger areas if we look forward from here to year-end and even into 2026.
Jim Puplava:
So, Craig, a final question. If you were to take out your crystal ball from the beginning of the year, are you still holding to your year-end targets?
Craig Johnson:
Yeah, Jim, I have not changed my year-end target of 6,600, and certainly before today's weakness, we were looking at about 20% upside to that target. Everybody's asked the question, am I going to change that target? The reason I have not changed the target is, number one, in these sorts of downdrafts, I think there's not a lot of great information, and you're not sure how far the market's actually going to correct. So, to be aggressively changing targets in this sort of environment, I don't think is a prudent thing to do, and it just adds to the confusion of the market. The second thing is, I went back and did a quick study, Jim, to look at whether there have been periods when we have seen, from basically this point forward to the beginning of the year, 20% or greater returns. The answer is absolutely yes. There are many instances where we've had more than 20% returns—in 2020, 2011, 2008-2009—where we did see a very healthy rebound coming off of some of these lows to get closer to our target. So, I'm still confident. Yes, I know, as the old John Chambers line used to be, it's probably a bit of a stretch goal. But at the end of the day, I still think it's a reasonable goal that this could happen, especially as some of these trade negotiations, tariffs, and other things subside.
Jim Puplava:
And I guess maybe one more final question.
Craig Johnson:
Sure.
Jim Puplava:
What could go wrong with this forecast for you? In other words, if there was something that would change your mind on that forecast or your position, what do you think that would be?
Craig Johnson:
I think if we started seeing an inability of the United States to meet its debt obligations, Jim, I think that's a very, very low probability. But again, we are sitting here with $36 or $37 trillion in debt, and we're putting tariffs on all these countries around the world. If some of these debt auctions do not get fully subscribed or met, that is certainly going to lead to more pressure for equity markets here in the United States. Since bonds do lead equities, that would probably be the biggest thing that would change my view, Jim—if we can't get a lot of this debt refinanced and done and reduced in an orderly fashion.
Jim Puplava:
And then I guess, where would you see gold here? It's been strong last year, and it's strong this year, and we're talking about record gold prices. Do you see gold higher or lower?
Craig Johnson:
I see gold probably continuing to have a pretty firm bid underneath it. And again, that makes all the people in Switzerland who listen to your show very happy and smiling at this point in time. But given the uncertainty in the world, given these new tariffs, given some of the policies of former administrations, I don't know why people wouldn't want to hold on to a higher level of gold. That would certainly be the case with Iran, Russia, and a lot of other countries. We just can't manufacture gold out of thin air, so that's a much more tangible asset.
Jim Puplava:
All right. Well, listen, Craig, it's always a pleasure having you on the program. I'd like to have you back maybe mid-summer to see where we are on hitting your goals toward the end of the year. If our listeners would like to follow your work, tell them how they could do so.
Craig Johnson:
Jim, I'd love to come back on the show. If anybody would like to see more of our work, they can send me an email at craigjohnson[at]psc[dot]com.
Jim Puplava:
All right, Craig, as always, a pleasure speaking with you. Take care, my friend.
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