Nick Hodge,
Publisher
April 15, 2025
Publisher’s Note: At Foundational Profits, we have sidestepped another drawdown in the broad markets. This is how we’ve been able to outperform the market over time. Below, you’ll find the unlocked intro of the premium issue for April. It’s a retrospective that shows how we navigated through the recent market crash, with preparations taking place as early as February. See how we did it below. And learn more about Foundational Profits here.
Enjoy,
—Nick
In disaster recovery planning, the first step is preparation.
You analyze risk and determine points of failure.
For our purposes, and from a bird’s-eye view, the growing risk, at least in equities, was overvaluation.
We noted in the year-end 2024 issue that:
The S&P 500 is up ~27% for the year, and ~56% over the past two years. Barring a black swan, this will be the fourth year in the past six that the US stock market delivers double-digit upside. It has been challenging to keep up without chasing historically-high valuations, with a Shiller PE Ratio now at 38.68. That ratio measures a stock’s price against its inflation-adjusted returns over the prior ten years. Going back 153 years, it has only been at current levels two previous times:
- 2021 - And the S&P lost 19.44% in 2022.
- 1999 - And the S&P lost 10.14% in 2000, 13.04% in 2001, and 23.37% in 2002
So we knew the risks.
And as early as this February 6th alert to you, we were determining the points of failure and repositioning, noting:
The dollar and bond yields are starting to roll over. The DXY hit 110 last month, and has softened to 107. The 10-year hit 4.8% last month, and is down to 4.4%.
These are big moves for currencies and bonds. While good for gold, which has made new all-time highs this week, they could be foreshadowing some short-term softness in growth, which could spill over to markets.
Indeed, the S&P 500, after hitting a new record intraday high at 6,128 late last month, has been making lower highs so far this month. It’s also getting choppier as evidenced by wider daily candles, and I don’t see much keeping it from retesting the 5,800 lows from January. I’m taking the opportunity to reshuffle my Foundational Profits portfolio, erasing some losses, and building a bit of cash for whatever comes next.
Once a disaster is declared, you assess the current state and take inventory.
I first sentried to you on February 25th:
Investors are scared and buying protection, with the VIX jumping from 15 last week to over 20 today. Risk assets like Bitcoin have been sold down quickly, at $87,000 at last check from a high above $108,000 just last month… many gaps to the upside emerged in charts last November upon the election of Donald Trump. Filling those gaps to the downside is now in play, including in financials.
We have plenty of cash (33%). And we have already locked in some upside via closed positions this year. That affords us patience. No new actions until volatility cools a bit.
And by March 5th — a full month before the bottom fell out of the S&P in early April — we sounded the alarm, putting an email in your inbox with the subject line: Position Changes Amid Economic Disturbance. In it, you were told to “proceed with caution, as both inflation and growth are set to fall in the coming months.” We sold another higher-risk position, a blockchain-related equity ETF, for gains.
Judging by the red chyrons and letters of dissent sent from banking CEOs to the White House, a disaster has been declared.
So let’s assess the Current State and Take Inventory before moving onto the latter parts of disaster recovery: Restoration, Recovery, and Lessons Learned.
The issue went on to analyze the current state of the markets and go over my current positioning, including every move I made over the past few weeks and the exact allocations in my current portfolio.
Check out Foundational Profits if you’re interested in managing your portfolio this way.
Call it like you see it,
Nick Hodge
Publisher, Daily Profit Cycle