🐋 The Friday the 13th Jitters & The "Late Cycle" Reality

Welcome back, friends. If you’ve been glancing at the financial news networks this week, you might be feeling a little bit of whiplash. The screens are flashing red, the headlines are screaming about global tensions, and to top it all off, today happens to be Friday the 13th. It’s the perfect recipe for a little bit of market anxiety, isn't it? But before we let the stress take over, I want us to take a deep breath and look at the big picture together. We are going to translate exactly what the "big money" is doing right now, step-by-step, without any of the headache-inducing jargon.

Let’s address the elephant in the room right away. Between the ongoing, tragic conflict in Iran dominating the headlines and the fact that stocks seem to be sinking day after day, it’s completely natural to feel a knot in your stomach. It feels like the ground is shifting. But as our friends over at the Motley Fool rightly pointed out this week: panic is never the right answer. Panic forces us to make permanent decisions based on temporary emotions. Instead of panicking, let’s look at the mechanics of what is actually happening under the hood of the stock market right now.

First, let’s talk about the calendar. It’s Friday the 13th in March. Interestingly enough, every eleven years, we get consecutive Friday the 13ths in February and March (as long as it isn't a leap year). Human nature loves to find patterns, and some folks on Wall Street are half-joking that investors are running for the exits because of the date. But we know better. We can't blame market declines on superstitions. The real driver of this market behavior is something much more fundamental.

According to recent notes from both Morgan Stanley and Eaton Vance, we are currently entering the fourth year of this current bull market. Because of that, investors are exhibiting what analysts call "late cycle" behavior.

Think of it like this: Imagine you are at a really great, long dinner party. For the first few hours, everyone is sitting nicely, having polite conversation, and eating their main courses. That’s the early stage of a bull market - steady, predictable, and solid. But as the night gets late, people get a little restless. The polite conversation turns into loud debates, people start raiding the weird liquors in the back of the cabinet, and the energy gets a bit chaotic.

That is exactly what a "late cycle" market looks like. The easy, steady gains have already been made over the last three years. Now, investors are getting restless and a bit overly enthusiastic. They start looking for excitement rather than solid fundamentals. This isn't necessarily a bad thing, but it is a very specific environment that we need to recognize. When you know you are at the end of the party, you don't panic when someone drops a glass - you just realize it's getting late. The selling we are seeing right now is a natural, expected part of this late-cycle phase, not the end of the world.

If the calendar isn't to blame for the market's recent dip, what is? Well, on Thursday, it seems market participants collectively woke up from a deep slumber, looked at the banking sector, and suddenly decided, "Uh oh, this is not good."

Folks came into this year incredibly optimistic about financial stocks, expecting them to be the steady workhorses of their portfolios. But for the most part, they have been terrible all year. Right now, most major bank stocks are down 20% or more. The funny thing is, this didn't happen overnight. They have been sliding for months. But Wall Street has this funny habit of ignoring a problem until everyone suddenly notices it all at once.

Here is the simple version: Imagine you are driving down the highway and your "Check Engine" light comes on. You might ignore it for a few hundred miles because the car still feels fine. But eventually, the car starts to sputter, and suddenly you are pulling over in a panic. The problem was always there; you just finally had to deal with it. That’s what happened with bank stocks this week.

But here is the most important part of this story: Was this sudden realization enough to cause widespread market panic? Not at all.

If we look at the actual trading volume - which is just the total number of shares being bought and sold - it has actually gotten lighter, not heavier. When people are truly panicking, volume explodes because everyone is rushing for the emergency exits at the same time, trampling each other to sell. What we are seeing right now is persistent selling, sure, but it is not panicky selling. It’s orderly.

We can see this in the sentiment indicators, too. The American Association of Individual Investors (AAII) runs a survey to see how people are feeling. Recently, the "bears" (people who think the market will go down) shot up by eleven points to 46%. Meanwhile, the NAAIM index, which tracks how much exposure big money managers have to the stock market, pulled back significantly. Back in December, they were fully loaded up, with exposure over 100%. Now? It's down to 67, which is the lowest we've seen since the panic lows of April 2025.

This means that the "smart money" is pulling in its horns. They are taking some chips off the table and getting cautious. And honestly? That is incredibly healthy. We had been in a state of deep complacency for so long, assuming stocks would just go up forever. A little bit of caution washes the blind optimism out of the system. It’s like hitting the reset button on a computer that’s been running too hot. It might be annoying in the moment, but it sets you up for much smoother operation tomorrow.

Now that we’ve established that the sky isn't falling, let’s talk about how money is actually moving through the system right now. If you want to understand the stock market, you have to understand "liquidity." It’s a word Wall Street loves to throw around to sound smart, but it’s actually a very simple concept.

Liquidity is just the amount of free-flowing cash available in the financial system.

Think of it like water pressure in a garden hose. If the pressure is low, the water just trickles out, watering the plants right in front of you. But if you crank the faucet all the way open, the water blasts out, spraying the driveway, the windows, and the neighbor's cat.

Right now, we are dealing with a high-pressure hose. Morgan Stanley’s recent commentary highlighted a major concern: the Federal Reserve is lowering interest rates, and we have fiscal policy stimulus coming early next year. That equals a massive amount of liquidity being pumped into the economy.

When there is that much cash sloshing around, it has to go somewhere. And in a "late cycle" market, it usually flows straight into the most speculative stocks.

Speculative stocks are companies that might not have strong fundamentals or even any real earnings yet. Instead, they have a really bright, shiny story about the future. Right now, investors are chasing companies involved in quantum computing, nuclear energy, rare earth materials, and yes, even flying cars.

Because there is so much money in the system, investors feel wealthy and brave. They stop looking at boring, reliable companies that make steady profits and start throwing their cash at science-fiction concepts, hoping to hit the jackpot. The key takeaway here is this: the more liquidity that gets pumped into the economy, the higher these speculative stocks rise, and the faster we sprint through this final, euphoric phase of the bull market.

As an everyday investor, it is incredibly easy to feel left out when you see your neighbor bragging about making a quick buck on a flying car stock. But remember our garden hose analogy. That water is spraying wildly, but it’s not building a solid foundation. Chasing these bright stories without looking at the underlying earnings is a classic late-cycle trap. Our job isn't to chase the wild spray of the hose; our job is to plant good seeds in solid ground and let them grow steadily over time.

If all that liquidity causes dangerous, euphoric bubbles in speculative stocks, how do we fix it? Well, the good news is that the market is already starting to fix itself.

Recently, some of the air has been let out of that speculative bubble. Those high-flying, story-driven stocks we just talked about have taken an absolute drubbing. On average, they are down -17% from their mid-October highs. For the folks who bought at the very top, that stings. But for the health of the overall market? It is exactly what we needed to see.

This brings us to the Federal Reserve. Everyone has been obsessing over whether the Fed will cut interest rates again in December. The market is starting to factor in the possibility that they might not cut rates. They might just pause.

When the financial news networks talk about a "Fed pause," they usually make it sound like a disaster. They want rates to go down forever so the party never stops. But I want to offer you a different perspective, one shared by the strategists at Eaton Vance: a Fed pause would actually be incredibly healthy for the duration of this bull market.

Let’s use an everyday translation: Imagine you are hiking up a very steep mountain. You’ve been climbing for hours, and you’re making great time, but your heart is racing and you are out of breath. If you keep sprinting, you are going to pass out and tumble back down the trail. But if you stop, sit on a rock, drink some water, and catch your breath for ten minutes, you can safely make it all the way to the summit.

A Fed pause is that water break. If the Fed doesn't cut rates in December, the rate of liquidity flowing into the market slows down. It reminds overly eager investors that you can, in fact, lose a lot of money in high-risk stocks. It acts as a gentle speed bump, slowing down our movement through this final euphoric stage. By taking some of the air out of the bubble now, we prevent a massive, painful pop later. It stretches out the life of the bull market, giving solid, reliable companies more time to grow sustainably.

So, if you hear the talking heads panicking about the Fed not cutting rates, just smile and take a sip of your coffee. Know that the market is just taking a much-needed water break.

Let’s pivot slightly and talk about the core foundation of the market: the S&P 500. If you listen to the chatter on Wall Street right now, you’ll hear a lot of hand-wringing about how "expensive" the market is. The fancy term they use is that the S&P 500 has a "rich valuation."

When analysts talk about valuation, they are basically asking, "Are we paying too much for these stocks compared to how much money the companies actually make?" It’s a fair question. But here is where we need to separate the noise from the reality.

While too much liquidity sloshing around is a valid worry, the perceived rich valuation of the S&P 500 overall concerns me far less. Why? Because valuation analysis is only as good as the fundamental estimates it’s based on.

Think of it like buying a house. If you look at a house listed for $500,000, you might think, "Wow, that's way too expensive for this neighborhood!" But what if you walk inside and discover the current owner completely renovated the basement into a luxury apartment that generates $3,000 a month in rental income? Suddenly, that $500,000 price tag doesn't look so expensive anymore. The underlying value of the house is much stronger than the curb appeal suggested.

Wall Street has been making a similar mistake since early April of last year. They have been way, way too bearish on the economic outlook. They assumed the economy was going to slow down drastically, and therefore, they predicted that corporate earnings were going to drop. They priced the market based on that pessimistic guess.

But what actually happened? The companies kept making money. In fact, we have just exited the third straight quarter where overall corporate earnings significantly exceeded Wall Street's projections. The engine under the hood is running beautifully.

So, when someone tells you the market is "too expensive," remember that they are often basing that on old, gloomy predictions that haven't come true. The reality is that American businesses have proven incredibly resilient. They are navigating inflation, they are adjusting to interest rates, and they are continuing to generate robust profits. As long as earnings remain strong, the foundation of the market remains solid, regardless of the day-to-day scary headlines.

So, where does all of this leave us? We’ve covered a lot of ground today. We know we are in a late-cycle market where speculative stocks are getting a little crazy, but we also know that a Fed pause is helping to let the air out of that bubble safely. We know the banks have taken a hit, but the selling is orderly, not panicky. And most importantly, we know that the actual earnings of the S&P 500 are beating expectations.

If you look at the technical indicators - the complex math that traders use to track market momentum - they are all pointing to a market that is simply tired and needs a rest. The Overbought/Oversold Oscillator is nearing the lows we saw back in April 2025. The McClellan Summation Index (a tool that tracks the balance of advancing vs. declining stocks) is stepping its toe into "oversold" territory.

When indicators get "oversold," it’s like a rubber band that has been stretched as far down as it can go. Eventually, the selling pressure runs out, the rubber band snaps back, and the market stabilizes. We are getting very close to that point. We’ve finally gotten some movement on the sentiment indicators, shaking out the blind complacency.

This is the moment where everyday investors usually make their biggest mistakes. They see six or seven days of red on their screens, they read a scary headline about Friday the 13th or global conflicts, and they sell their perfectly good, profitable investments out of fear.

Please, don't be that investor.

The big money managers have already pulled back their exposure. The speculative froth is being cleaned up. The underlying earnings are strong. We will get to a point where everything lines up again; we always do.

Your game plan right now is beautifully simple: Practice patience.

You don't need to try and time the bottom, and you certainly don't need to join the panic. Keep your focus on your long-term goals. Keep your money in high-quality companies that actually turn a profit. Let the "smart money" play their games with flying cars and quantum computing. We are going to stick to the fundamentals, enjoy our coffee, and let the market do its natural, healthy work of resetting itself.