Oh yeah! I think it's time to start talking about the possibility and likelihood of the reality we are seeing. I enjoy doing more educational and analytical posts, and my goal this year was to do more of them again—so here we go, round two of 2025!
Let’s Talk About the Market
It's selling, in case you hadn’t noticed. Some may say “correction,” but I say tomato, tom-ah-to. The reality is that a bear market is, at its core, a correction. Historically, bear markets haven’t just started for no reason. It’s not like the S&P 500 wakes up one day and has this conversation with the NASDAQ:
S&P: Yo, Nazzy.
NAZ: What?
S&P: Let’s do something new.
NAZ: What?
S&P: Let’s tank and shake the whole world. You up for it?
NAZ: I don’t... I don’t know, I don’t think...
S&P: Nah, nah, trust me. It’ll be funny. Let’s ruin some 401(k)s and give the economy a real shock. It’ll be hilarious! You in?
NAZ: I... I don’t... fine, I guess. 🙄
Yeah, no. The reality is that bear markets result from multiple factors, such as:
Every bear market in the long history of the S&P has been the result of several of these factors combined. No bear market ever materialized out of thin air. While some crashes have occurred for questionable reasons—such as Black Monday in the 1980s—true bear markets typically result from a prolonged accumulation of unsustainable growth.
This could be due to:
So, as you can see, we have some basis for a bear market thesis here.
Blame Trump?
I see a lot of people blaming Trump, so let me preface this—I don’t support him, but I’m not about to make this a politically fueled post because that would distract from the real issue at hand. The reality is that he’s not the root cause of the market’s decline.
These structural factors existed pre-Trump and will exist post-Trump once this correction is complete. However, while he may not be the root cause, he is certainly throwing fuel on the fire.
His obsession with tariffs, economic instability, and personal financial gains (cough crypto cough) has arguably added to the growing lack of confidence in the market. Investors and hedge funds aren’t dumb—when Warren Buffett and other major firms pulled out before the decline started, that should have been the first warning sign.
The market was already reaching astronomically high valuations. However, recovery may take longer when the leader of the economy is actively contributing to instability rather than fostering confidence.
The Crypto Situation—A Warning Sign
What Trump did with crypto raises serious concerns. If crypto can be manipulated for personal gain, who’s to say the NYSE itself won’t be next?
Elon Musk and others have already gotten away with market manipulation, setting a dangerous precedent of complacency from the SEC. In my opinion, investor confidence should have eroded long ago.
To put numbers behind this sentiment, the American Association of Individual Investors conducts a weekly survey on investor sentiment. As of March 13, 2025, results show:
Complex Market Dynamics
There’s a lot happening right now that complicates the situation. Months ago, I posted a video about the US Money Supply vs. the S&P 500, available here:
In this video, I discuss how overextended the market is relative to the US money supply. The only way to sustain current valuations would be to drastically increase the money supply.
But here’s the problem:
📌 Increasing the money supply = higher inflation
With the US already narrowly avoiding recessions since 2022, increasing the money supply further would exacerbate inflation, leading to even greater economic instability.
Check out this chart I plotted, showing US Money Supply (green) vs. Inflation (red):
As you can see, whenever the money supply increases, inflation follows.
Tariffs & The Economy
Many people assume that tariffs increase the money supply—but that’s not how it works. The USA is not self-sufficient (no country is), and it still relies on imports.
Who actually pays the tariff? Not the foreign country—the domestic consumers do.
For example, when an American buys a product made in China, they pay the tariff cost, which is then sent back to China. It’s a net-zero game that hurts both economies without providing any real financial advantage.
Let’s Get Mathy 🤓
Now, let’s bring in the math.
In my last money supply video, I used visual scaling and qualitative comparison. But for a rigorous analysis, we need to:
If the US Money Supply and the S&P 500 are cointegrated and stationary, we can use the money supply to predict the S&P’s valuation.
And guess what? They are.
Using the Augmented Dickey-Fuller test (for stationarity) and the Johansen Cointegration Test, we get positive results:
This confirms a strong relationship between US Money Supply & the S&P 500 across multiple cointegrated vectors.
The Cointegration Equation
Running a cointegration regression in R, we get this equation:
📌 y = 2.046e-10x - 1.492e+02
Where X = current money supply and Y = expected S&P 500 valuation.
Plugging in today’s money supply gives us an expected S&P value of 4,262.571.
Accounting for error range (σ = 294.8):
I’ve incorporated this equation into PineScript to show you here:
Will the S&P Correct to the Money Supply?
Not necessarily. Money supply is dynamic, and as it increases, so will the expected S&P valuation.
This relationship will persist until equilibrium is restored. We can see this in historical data:
The Verdict
This is a much-needed correction—or bear market, call it what you want.
The S&P’s growth rate was unsustainable, especially in relation to:
Whether the S&P falls all the way to equilibrium or they meet somewhere in the middle remains to be seen. But one way or another—equilibrium will be restored.
This post is already long enough, so I’ll leave it at that!
Thanks for reading, and as always—safe trades! 🚀
Let’s Talk About the Market
It's selling, in case you hadn’t noticed. Some may say “correction,” but I say tomato, tom-ah-to. The reality is that a bear market is, at its core, a correction. Historically, bear markets haven’t just started for no reason. It’s not like the S&P 500 wakes up one day and has this conversation with the NASDAQ:
S&P: Yo, Nazzy.
NAZ: What?
S&P: Let’s do something new.
NAZ: What?
S&P: Let’s tank and shake the whole world. You up for it?
NAZ: I don’t... I don’t know, I don’t think...
S&P: Nah, nah, trust me. It’ll be funny. Let’s ruin some 401(k)s and give the economy a real shock. It’ll be hilarious! You in?
NAZ: I... I don’t... fine, I guess. 🙄
Yeah, no. The reality is that bear markets result from multiple factors, such as:
- Bubbles
- Over-exuberance
- Changing economic conditions
- Changing geopolitical factors
- Many other interconnected influences
Every bear market in the long history of the S&P has been the result of several of these factors combined. No bear market ever materialized out of thin air. While some crashes have occurred for questionable reasons—such as Black Monday in the 1980s—true bear markets typically result from a prolonged accumulation of unsustainable growth.
This could be due to:
- Outpricing the average investor (which the S&P currently does).
- Being fueled by speculative innovation (we have AI hype today, just as the ‘90s had dot-com hype).
- Becoming disproportionately large compared to the actual monetary supply in which it operates (as of 2025, the S&P 500 is valued higher than the U.S. money supply—more on that later).
So, as you can see, we have some basis for a bear market thesis here.
Blame Trump?
I see a lot of people blaming Trump, so let me preface this—I don’t support him, but I’m not about to make this a politically fueled post because that would distract from the real issue at hand. The reality is that he’s not the root cause of the market’s decline.
These structural factors existed pre-Trump and will exist post-Trump once this correction is complete. However, while he may not be the root cause, he is certainly throwing fuel on the fire.
His obsession with tariffs, economic instability, and personal financial gains (cough crypto cough) has arguably added to the growing lack of confidence in the market. Investors and hedge funds aren’t dumb—when Warren Buffett and other major firms pulled out before the decline started, that should have been the first warning sign.
The market was already reaching astronomically high valuations. However, recovery may take longer when the leader of the economy is actively contributing to instability rather than fostering confidence.
The Crypto Situation—A Warning Sign
What Trump did with crypto raises serious concerns. If crypto can be manipulated for personal gain, who’s to say the NYSE itself won’t be next?
Elon Musk and others have already gotten away with market manipulation, setting a dangerous precedent of complacency from the SEC. In my opinion, investor confidence should have eroded long ago.
To put numbers behind this sentiment, the American Association of Individual Investors conducts a weekly survey on investor sentiment. As of March 13, 2025, results show:
- Only 19% of investors are bullish
- 60% are bearish
- This marks the 4th consecutive week of majority bearish sentiment
Complex Market Dynamics
There’s a lot happening right now that complicates the situation. Months ago, I posted a video about the US Money Supply vs. the S&P 500, available here:
In this video, I discuss how overextended the market is relative to the US money supply. The only way to sustain current valuations would be to drastically increase the money supply.
But here’s the problem:
📌 Increasing the money supply = higher inflation
With the US already narrowly avoiding recessions since 2022, increasing the money supply further would exacerbate inflation, leading to even greater economic instability.
Check out this chart I plotted, showing US Money Supply (green) vs. Inflation (red):
As you can see, whenever the money supply increases, inflation follows.
Tariffs & The Economy
Many people assume that tariffs increase the money supply—but that’s not how it works. The USA is not self-sufficient (no country is), and it still relies on imports.
Who actually pays the tariff? Not the foreign country—the domestic consumers do.
For example, when an American buys a product made in China, they pay the tariff cost, which is then sent back to China. It’s a net-zero game that hurts both economies without providing any real financial advantage.
Let’s Get Mathy 🤓
Now, let’s bring in the math.
In my last money supply video, I used visual scaling and qualitative comparison. But for a rigorous analysis, we need to:
- Assess cointegration
- Ensure stationarity
- Develop a cointegrated pair regression
If the US Money Supply and the S&P 500 are cointegrated and stationary, we can use the money supply to predict the S&P’s valuation.
And guess what? They are.
Using the Augmented Dickey-Fuller test (for stationarity) and the Johansen Cointegration Test, we get positive results:
This confirms a strong relationship between US Money Supply & the S&P 500 across multiple cointegrated vectors.
The Cointegration Equation
Running a cointegration regression in R, we get this equation:
📌 y = 2.046e-10x - 1.492e+02
Where X = current money supply and Y = expected S&P 500 valuation.
Plugging in today’s money supply gives us an expected S&P value of 4,262.571.
Accounting for error range (σ = 294.8):
- Upper Bound: 4,557.371
- Lower Bound: 3,967.771
I’ve incorporated this equation into PineScript to show you here:
Will the S&P Correct to the Money Supply?
Not necessarily. Money supply is dynamic, and as it increases, so will the expected S&P valuation.
This relationship will persist until equilibrium is restored. We can see this in historical data:
The Verdict
This is a much-needed correction—or bear market, call it what you want.
The S&P’s growth rate was unsustainable, especially in relation to:
- The US Money Supply
- Speculative AI-driven hype
- Economic & geopolitical instability
Whether the S&P falls all the way to equilibrium or they meet somewhere in the middle remains to be seen. But one way or another—equilibrium will be restored.
This post is already long enough, so I’ll leave it at that!
Thanks for reading, and as always—safe trades! 🚀
Note
If you would like to overlay the indicator onto your chart, it is not public because it is just too simple to publish. But here are the instructions for you to recreate it with the cointegration equation, simply copy this into your pine editor and you will have access to the cointegrated pair indicator: Safe trades all 🚀
If you're looking for:
- Live Updates,
- Discord access,
- Access to my Proprietary Merlin Software,
- Access to premium indicators,
Consider joining my trade group at:
patreon.com/steversteves
- Live Updates,
- Discord access,
- Access to my Proprietary Merlin Software,
- Access to premium indicators,
Consider joining my trade group at:
patreon.com/steversteves
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
If you're looking for:
- Live Updates,
- Discord access,
- Access to my Proprietary Merlin Software,
- Access to premium indicators,
Consider joining my trade group at:
patreon.com/steversteves
- Live Updates,
- Discord access,
- Access to my Proprietary Merlin Software,
- Access to premium indicators,
Consider joining my trade group at:
patreon.com/steversteves
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.