All of the signs that the long AI-driven stock market rally that started in November 2022 with the debut of ChatGPT is almost out of steam are beginning to show up. Retail sales were hammered in January, and Walmart gave a very cautious outlook for the rest of 2025. Euphoria and a tsunami of retail investors cash have poured into some of the most speculative corners of the stock market, reminding Wall Street veterans of the late 1990s and the dot.com implosion. With the S&P 500 clicking off all-time highs seemingly every week despite trading at 28.77 times earnings, many feel that the combination of tariffs, the market being way overbought, and the fact that the Federal Reserve likely will not lower interest rates again in 2025 all point to trouble.

24/7 Wall St. Key Points:

• Inflation remains 50% higher than the Federal Reserve’s 2% target
• The ongoing battle with inflation is the main reason fed funds will likely stay at current levels until 2026
• Retail investor’s  exposure to stocks is in the 96th percentile in data going back to 1997
• Is your portfolio vulnerable to a significant market correction? Why not meet with a qualified financial advisor near you for a complete review today? Click here to get started finding one. (Sponsored)

The “Buy the Dip” financial news teleprompter readers and the 30-year-old portfolio managers who have never seen a market crash are still pounding the table that stocks are going to the moon. Market veterans and “Hey Boomer” professionals have seen this show before. In 1987, the DJIA plunged a stunning 22% in one day. Today, an equivalent drop in the venerable index would be 9805 points.

Except for Meta Platforms, Inc. (NASDAQ: META), almost all of the Magnificent 7 have been showing signs of slowing down. While the equal-weighted S&P 500 has broadened out some, which is a huge positive, it could be time for the market to take a breather. One positive is that consumers and businesses are generally in reasonably good financial shape. Stock portfolios and home prices have increased dramatically over the last few years, and the economic system isn’t teetering on the abyss as it was globally in 2008 when Bear Stearns and Lehman Brothers collapsed. To avoid a similar fate, Merrill Lynch had to be bought by Bank of America.

One thing is for sure: If inflation moves higher, the wars in the Middle East and Ukraine don’t finally end, and our crushing national debt, approaching $36 trillion, continues to spiral out of control, the path of least resistance will be down. Investors should consider 7 smart moves to do now.

Start building cash reserves now

Matching current losses against gains, even if they are short-term, makes sense to help build up a cash supply. The proverbial dry powder may come in handy down the road. Move the cash to high-yielding money-market funds. Some pay as high as 4% with daily liquidity and are insured by the FDIC up to $250,000.

Close out any margin positions immediately

Margin is the money borrowed from a broker to purchase stocks. When times are good, using margin loans to buy more stock is a bad plan for individual investors, especially when those margin positions are high-volatility momentum stocks. If the market collapses, a highly leveraged investment account could be destroyed. Plus. Margin interest at almost all banks and brokerage firms is typically very high and charged as long as you have the position in place.

Gold and Silver still make sense now

As we have recommended for years at 24/7 Wall St., a gold position helps mitigate the downside. As we noted last year, the precious metal did return to all-time highs and has continued to move toward the $3000 level, but it could explode higher in a market crash. One great way to invest in gold is the SPDR Gold Shares ETF (NYSE: GLD), one of the best pure plays on Gold for investors. The trust that sponsors the fund holds physical gold bullion and some cash. Each share represents one-tenth of an ounce of the price of gold. However, the fund does not pay a dividend.

Make sure investments reinvest in more shares

Please ensure that all the dividend-paying stock and mutual funds in personal and retirement accounts are coded to reinvest all capital gains and dividends, if possible. This allows you to buy more shares when prices are hit hard. The second quarter is coming, and many stocks and funds pay dividends on a calendar quarterly basis. Check with your broker if your stocks offer a DRIP or dividend reinvestment plan. If the shares you own don’t have a DRIP plan, at many firms, you can buy more shares with dividends paid to your account at no charge.

Real Estate can help soften the blow

Consider real estate if you have the good fortune to come into a windfall, like an inheritance or something similar. While mortgage rates have increased over the last two years, the 30-year fixed rate has risen as high as 7.25%. However, it has fallen back to 6.39% for a 30-year FHA mortgage, and while still reasonable on a historical basis, it’s the highest since 2008. Owning cash-generating passive income rental property makes sense now. Typically, real estate is also not correlated to the stock market so that it won’t lose value in a big market sell-off.

Pick stocks carefully now

Conservative stocks delivered a positive annualized return every decade, beating their speculative peers in many periods. If you need stock ideas now, look at highly conservative ideas, which are not affected as badly by even the worst-case scenarios. In other words, look at companies that provide goods and services that are needed all the time, such as utilities, telecommunications companies, consumer staples, and real estate investment trusts.

U.S. Treasury bonds look great now

Treasury bonds include a range of debt securities issued and backed by the US government. You can sell high-volatility stocks and look at the short end of the Treasury market. The 2-year note, like all Treasury debt, is guaranteed by the full faith and credit of the United States and yields a solid 4.30%. One-year Certificates of Deposit yield as high as 5%, and money market savings accounts, FDIC insured up to $250,000, yield anywhere from 3% to 4% with daily liquidity.

Stock rallies don’t last forever

Can the stock market rally continue if rate cuts no longer appear on the way, earnings slow, and forward guidance is weak? The recent massive bull market run has been a blessing and now may become a curse. Numerous drops and corrections have occurred over the years; the fourth quarter of 2018 was a good example when the S&P 500 declined 18% on an intraday trading basis over three months.

Remember that even the most challenging human history and investing events have eventually been overcome. Whether healthcare-related, war-related, foreign geopolitical or domestic troubles, or other issues that have combined to cause market sell-offs, they ultimately end. It makes sense to take advantage of the recent massive increases in stock prices over the last two and a half years and shift to higher and safer ground.

 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.