To The Moon

Investor sentiment in early 2025 shares striking similarities to the fear-driven market of late 2018, though some key differences exist. 

Both periods were marked by Federal Reserve tightening, trade policy uncertainty, geopolitical risks, and fears of slowing economic growth, creating a risk-off environment that led to sharp selloffs in tech stocks and the broader Nasdaq-100 ($Invesco QQQ(QQQ)$  ).

🔴 2018: Extreme Bearishness and a Near Bear Market

Investor Fear Factors in Late 2018

1. Federal Reserve Aggressiveness – The Fed raised rates four times in 2018, tightening financial conditions and causing fears of a recession.

2. U.S.-China Trade War – Tariff escalations and the Huawei CFO's arrest led to concerns over global supply chains.

3. Global Growth Concerns – The yield curve inverted, a classic recession warning sign.

4. Political Instability – The U.S. government shutdown added another layer of uncertainty.

🔻 Result: QQQ fell nearly 20% from its peak by December 2018, and investor sentiment was deeply pessimistic.

🔴 2025: Renewed Fear, But With Different Risks

Investor Fear Factors in Early 2025

1. "Higher for Longer" Interest Rates – The Fed is keeping rates high, with no clear pivot signal yet.

2. Trade & Geopolitical Risks – New tariffs, U.S.-China tensions, and Middle East conflicts are causing investor caution.

3. AI Valuation Concerns – The massive AI-driven rally of 2023–2024 has led to fears of a tech bubble correction if AI-driven earnings fail to deliver.

4. Economic Slowdown Fears – Softening consumer demand and corporate earnings raise growth concerns, though no recession has materialized yet.

🔻 Result: QQQ has experienced a significant pullback in early 2025, though not at the extreme levels seen in 2018.

🔄 Key Similarities: Why 2025 Feels Like 2018

✅ Tech Stocks Leading the Decline – In both periods, QQQ's sharp drop has been driven by growth stocks suffering from higher rates and economic uncertainty.

✅ Rate Policy Uncertainty – The Fed's stance on monetary policy was unclear in late 2018, just as it remains uncertain in 2025 regarding rate cuts.

✅ Trade War/Tariff Fears – Global trade tensions disrupted tech sector sentiment in 2018, and new tariffs in 2025 are again rattling markets.

⚖️ Key Differences: Why 2025 is Not Exactly 2018

🔹 Fed Policy is Restrictive, But Not Actively Hiking – In 2018, the Fed was still hiking rates aggressively, whereas in 2025, rates are high but stable, with the possibility of cuts later in the year.

🔹 AI is a New Factor – In 2018, the market wasn't dominated by AI-driven hype, whereas in 2025, AI is a secular long-term growth driver for the entire US equity market.

🔹 Earnings Are More Resilient in 2025 – While there are growth concerns, the economy and earnings results have not yet shown the same level of global slowdown fears that emerged in late 2018.

🔹$iShares iBoxx $ High Yield Corporate Bond ETF(HYG)$ is up nearly 2% YTD (incl. Dividends), with tight spreads and strong corporate health, shrugging off equity panic for now.

📈 2025 Recovery Potential: Can QQQ Repeat 2019's Rebound?

In 2019, investor sentiment turned around sharply once the Fed pivoted to a more dovish stance and trade tensions eased. If 2025 follows a similar trajectory, QQQ could recover based on:

✅ The Fed Signals Rate Cuts – Even hints of a dovish shift could bring buyers back into growth stocks.

✅ Tariff and Trade Fears Ease – Any de-escalation in trade policies could remove a key overhang.

✅ AI & Tech Earnings Remain Strong – If AI companies continue delivering solid earnings and forward guidance, the growth story can remain intact.

🚀 If these factors align, 2025 could see a recovery back to all-time highs, similar to 2019's sharp rebound.

@Tiger_comments