There’s a lot going on right now and I’ve got way more questions than answers. Here’s a few that seem important:

Is this stock market correction the beginning of a bear market? Obviously, no one knows but Friday’s close did mark a milestone. The S&P 500 and NASDAQ Composite both closed below their respective 200-day moving averages. The 200-day MA is merely a trend that smooths out the short-term ups and downs of the market. There are numerous studies showing that a trend-following system that owns the index above the average and sells it below, performs better than just buy and hold, especially on a risk-adjusted basis. On the other hand, as a sell signal, it produces a fair number of false positives.

Another useful, if less well tracked, moving average is the 50-month moving average. We have had 6 drawdowns of greater than 20% in the S&P 500 since the turn of the century (one about every 4 years). In four of those, the 50-month moving average marked the low. The other two were bear markets of the great variety, ones that fall an average of 50% rather than the 25% of the routine variety. The dot com bear market ran from March 2000 to October 2002 and saw the index fall 49.1%. The financial crisis bear market of 2008 fell 56.8%. Those bear markets saw the index fall below the 50-month moving average and keep falling. Today, the S&P 500 is down about 7% from its high and falling to the 50-month MA would require a further drop of 20%, so, if this is a bear market, it still has quite a ways to go. The difference between great bear markets and routine ones is significant. The market didn’t make a new high after the dot com bust until late 2007 and then almost immediately crashed again in 2008. Combining the two, it took almost 13 years to make a new high. By contrast, routine bear markets take about 2 years to recover to new highs. Let’s hope that if this is a bear market, its a routine one.

If you missed the non-US stock surge last year, should you be buying this dip? Or was last year the outlier? For most of last year, the consensus was to diversify your portfolio with non-US stock exposure. With the dollar fall adding a tailwind, that move paid off big in 2025. The EAFE index beat the S&P 500 last year 31.5% to 17.7%. But in this correction, the EAFE is down over 11% while the S&P is down just 7%; developed market foreign stocks are still outperforming the US YTD (-2.5% vs -4.6%).  Non-US stocks are obviously more affected by the Iran war than the US. Roughly 80% of the oil and LNG transiting the Strait of Hormuz is headed for Asia. Europe, by contrast, gets only about 10% of its energy imports through the strait. Europe will still suffer though as Brent Crude prices will remain elevated as long as the strait is closed. So, if the Hormuz blockade continues for any length of time, foreign economies, particularly in Asia, are going to be more negatively affected than the US. That reality is also likely reflected in the US dollar and even if the strait is opened soon, it will take some time for energy supplies to normalize. I wouldn’t expect foreign stocks to outperform until the dollar starts to fall again.

With all the uncertainty in the world right now, why has gold been falling? Isn’t it supposed to be the “fear” asset? Gold’s correction has been even worse than non-US stocks, down over 16% since the peak in late January. In a way, the cause is the same – the dollar bottomed at the same time stocks and gold topped. Since then, the dollar is up 4% while stocks and gold are down; the correlation is obviously negative, right? Well, yes, for now, but there are a lot of things that influence the value of the dollar as well as the price of stocks and commodities. I’ve seen speculation that Asian central banks may be liquidating gold to buy suddenly very expensive energy inputs, but that seems premature. It could also just be that, even after this recent correction, gold is up 130% over the last three years, nearly double the return of the S&P 500. A little profit taking shouldn’t be shocking. Gold and other commodities are good diversifying assets for strategic portfolios, but they have to be actively managed. 

Should investors be chasing the energy stock rally? Oil stocks have done well this year for obvious reasons that may or may not continue. I’d be careful buying after this rapid runup; a resolution of the Hormuz issue could send them back down pretty fast. Investors should probably think about having some kind of strategic allocation to energy, either in the form of energy stocks or a general commodity index ETF. Natural resource supply chains feel fragile right now and the Iran war just reinforces the urge to hoard raw materials. I suspect we’ll see more of that in coming years. A general commodity index may be the better choice since it gives you exposure to more than just oil. A strategic allocation to commodities – it doesn’t have to be a big allocation to provide diversification benefits – can be a drag at times but is very useful at times like this.

Is this the first of many future closures of the Strait of Hormuz? Iran had the ability to do this before now but never exercised the option. Both Iran and Iraq hit shipping in the strait during their war in the 80s but the strait was never closed as it is today. It wasn’t all that safe but it was open. There have been several other incidents that made it a dangerous space – this isn’t the first time insurance rates have spiked – but it has been open for the entire time since the Iranian revolution. The Iranians knew that closing the strait would draw a strong response from the US and a variety of other nations dependent on it. Now that we’ve attacked pre-emptively, the cost to the Iranians for closing the strait is essentially nil. We know they are already allowing certain ships through and over the weekend there have been reports they are considering imposing a toll for ships to pass through. Did we break the taboo for the Iranians? Is the probability of the strait being closed at any given time higher in the future than it was in the past? Maybe so. If the Iranians believe that the US and Israel will attack no matter what they do, they have no reason not to use strait closure as a weapon. If so, energy security has fallen for the entire global economy. Areas blessed with their own supply would seem to be better positioned in that world and the US is right at the top of that list.

How bad is the Chinese economy and is it a threat to the rest of the world? China’s Q4 2025 real GDP growth was 4.5% YoY which sounds pretty good but that is only part of the story. China’s total debt is over 300% of GDP and growing rapidly. Government debt is growing at about 7%/year while non-financial corporate debt is growing at about 6%. The household sector’s debt, on the other hand, is shrinking at about 2%/year. The underlying problems are similar to the ones that put Japan’s economy in neutral for over two decades. There’s a large overhang of bad real estate debt and, just as in 1990s Japan, it is not being written off; bankers are taking extend and pretend to new heights. The household sector has (had?) roughly 70% of its wealth in real estate and I’d guess that a lot of it has no value at all, even if the banks don’t and government don’t want to admit that yet. That’s why the household sector is retrenching – paying down debt is a form of saving – instead of consuming and the government has had to push exports to the rest of the world to keep the economy growing. That in turn has triggered a backlash in the form of tariffs and not just from the US. Japan couldn’t export their way out of their debt problem and I don’t think China can either.

China’s economy is growing slower than its debt and that means the debt to GDP figure continues to grow. Prices in China fell last year – deflation – so while real GDP grew at 5% YoY, nominal GDP only grew 4%. While inflation can, in theory, reduce the burden of debt, deflation makes it more onerous. What are the implications for the US and the rest of the global economy? I suspect it isn’t as dire as the pessimists/permabears insist. In the early 2010s, I said repeatedly that China would go the same way as Japan, into deflation and irrelevance. China has many of the same problems: deflation, shrinking workforce, low fertility, and a hostility to immigration, high levels of debt and a cultural/political barrier to writing it off, heavy use of industrial policy, and a corporate sector driven more by efficiency than innovation. Will China have a debt-driven financial crisis? I have my doubts. So far, they have done a pretty good job of obscuring their difficulties, continuing to push the resolution of their debt problem further into the future. Japan did it for 30 years or so and I’d guess China probably can too.

Why haven’t US natural gas prices risen like the rest of the world? It would seem an ideal environment for a bull market in natural gas. Natural gas fueled 16% of US electricity production in 2000 while coal was the largest share at 52%. Today that has nearly flipped; natural gas’s share is now 40% and coal has dropped to 16%. Electricity demand from 2000 to 2025 grew at an average annual rate of 0.6%. From 2021 to 2025, it grew at 2%/year and with the build out of AI seems likely to continue doing so for some time. At the turn of the new century, 25  years ago, the US was worried about a shortage of natural gas. Some of the current LNG export terminals started life as regassification plants because we expected to have to import LNG to make up the shortage. Shale solved that problem and for years we had a glut of gas but the US exported LNG for the first time in 2016. Today we’re the largest exporter of LNG in the world. The impact of the Iran war would also seem to be positive for US LNG exports, especially after about 17% of Qatar’s export capacity was damaged by an Iran attack. They estimate 3 to 5 years for repairs. Unfortunately, our capacity for exports is currently maxed out but is expected to double by 2030. The outlook for the demand side of the equation is very good. So, why aren’t prices rising?

There is plenty of demand for natural gas but there is also plenty of supply. Until recently we faced a glut, as production routinely ran well ahead of demand. But that is starting to change. US production hit a record last year of 118.5 Bcf/d but supply hasn’t been rising as fast as demand so today there isn’t much slack, at least at current prices. Domestic usage last year was 92 Bcf/d and exports, via pipeline (to Mexico) and LNG, was 24.6 Bcf/d which leaves only 1.6Bcf/d of slack. That doesn’t seem like much and it isn’t but with slightly higher prices we have more capacity. Two pipelines to carry natgas from the Permian basin should be finished by the end of the year. There’s also the Haynesville shale formation but breakeven prices are bit higher there so prices probably need to get to about $5 from the current $3.10 to see production increase significantly. There’s also more gas in Appalachia (Marcellus and Utica shale) but getting more pipelines built is a regulatory impediment even Warren Buffett couldn’t overcome. Where does that leave things? Will prices have to rise to bring in more Haynesville supply? Probably someday but the $5 needed to really ramp up production is 60% above current prices and those pipelines from the Permian are about to add to supply – again. 

There are always more questions than answers for investors – the future is always uncertain – but the degree of uncertainty today seems greater than the past. That is mostly due to President Trump’s impulsive nature and his penchant for creating drama. He issued an ultimatum to Iran over the weekend, telling them if they don’t start allowing traffic through the strait forthwith he’ll start bombing their power stations and other infrastructure. The deadline is Monday but no one knows whether he’ll follow through after Iran threatened important infrastructure across the ME if he does. Will he or won’t he? Will they or won’t they? I don’t know and I don’t think anyone else does either, including the President and whoever is calling the shots in Iran.

Asking questions is a great way to think about what you know and don’t know, the latter almost always greater than the former. If you have made some reasonable choices about your strategic allocation, making changes to your portfolio should require a high hurdle. Asking questions requires one to slow down and think – and discover how little you actually know versus how much you thought you knew before you started thinking. It can be a humbling experience but acting on emotion is a recipe for failure and regret; asking questions is a way to temper those emotions.

So, with all that, I have just one more question. Will the University of South Carolina women’s basketball team win another national championship this year? I sure hope the answer is yes but I won’t be making any bets on it.

Joe Calhoun