My colleague, Nate Tomkiewicz, recently asked me if I enjoy the type of market we are seeing today—heavy volatility with a heightened need to make a more precise prediction on the economic outlook.
My answer was, “Yes, but…”
Obviously, I do not want the economy to slide into a recession. People lose jobs and families struggle. From a professional perspective, however, this is typically the moment I crave—until it happens.
A little-known fact about me: I have participated in 11 professional fights. I was perfectly mediocre, with a record of 5-5-1. I loved the training—the fight camps. Often, other members of your team are on the same card, so there is this heightened camaraderie of the team supporting the competitors.
The fighters simultaneously endured and enjoyed two months of suffering for that one moment in the cage. And I loved that moment—being on stage to compete, to prove something to yourself. Mostly, though, win or lose, it was to fight with heart in appreciation of all the time our team spent with us. However, before every fight, a part of me hoped the other guy would drop out, or I would question my sanity and tell myself I would never do this again. It is like that for me when we are on the precipice of a recession.
Volatile stock markets associated with a high probability of recession are the professional moments for which I have trained. I enjoy determining the market moves, but I hate it when it happens. I prefer things to work themselves out, and I never want the recession to actually show up. But I must fight—I must research and make tough investment decisions. And as much as I had hoped for that moment, I want it to go away as soon as it comes. Still, at the heart of it all, I enjoy the process—slugging it out with the data.
But this time, it is a new set of fight rules. All my economic training up until this point feels worthless. There is no game plan to fight or predict fiscal policy narratives when they can change at the whim of a 2 a.m. tweet, X, Truth, or whatever.
A good fighter relies on offensive moves but must also be quick to react defensively to counterattack. In this political era, where the economy is being driven by erratic fiscal policy, my offensive strategies are weakened—I have no reliable prediction tools. Instead, I constantly feel as if I am one punch away from being on my heels, hoping I can be quick enough to react.
Currently, my investment portfolios feel more like Floyd Mayweather, a renowned defensive fighter, than Nate Diaz, who will overwhelm his opponent with offense. I am keeping my hands up so I don’t get knocked out. I am keeping a low center of gravity, so I don’t get taken down. What does that mean for portfolios? Despite my concerns about a recession this year, I am not in all cash because, as I have said previously, the stock market can rip higher at any moment if the president tweets something positive. Still, I have to keep my guard up. Six months ago, I was Nate Diaz, and my investment allocation was more risk-on than risk-off. While I am not totally in my defensive Mayweather stance, I have reallocated portfolios, so if a knockout Tweet surprises me, I can absorb that blow a bit better.
If the market rips higher from here, my returns will be left behind. However, I have decided it is more important to survive this round than to risk losing the fight.
Absent a new fiscal policy tweet, the stock market should rally in the short term
In recent weeks, investor sentiment indicators have reached levels that historically preceded short-term stock market rallies. Two key measures—the CBOE Volatility Index (VIX) and the American Association of Individual Investors (AAII) Sentiment Survey—signal heightened fear and pessimism among investors. Periods of high volatility and investor pessimism have historically been followed by strong market performance.
The AAII Sentiment Survey for the week ending April 2, 2025, showed that only 21.8 percent of investors were bullish, well below the historical average of 37.65 percent. Such low levels of bullish sentiment are often seen as contrarian indicators, suggesting that the market may be poised for a rebound. When investor optimism is low, it usually means that much of the negative sentiment is already priced into the market, creating opportunities for gains as conditions improve.
On April 8, 2025, the VIX closed at 52.33, significantly above its long-term average of approximately 20. The VIX measures expected volatility in the stock market over the next 30 days, with higher values indicating greater anticipated volatility. Historically, when the VIX spiked above 40, the S&P 500 often experienced strong returns in the following year. For instance, after the VIX exceeded 40 during past market stress periods, the S&P 500’s one-year returns have averaged around 30 percent.
This further supports my defensive, but not too defensive, investment allocation in my investment portfolios.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.