Calling the Bear: How Carter Braxton Worth Predicted the Market Drop and What Comes Next

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3:15My guest today, Carter Braxton Worth, was quoted in CNBC as saying, It's official. We are in a bear market. Now, what makes this remarkable isn't what he said, because by now the bear market is obvious. What makes this remarkable is when he said it. He wrote this at the end of February, right after the market hit all-time highs and just weeks before the big market sell-off in the beginning of March that would kick off the bear market we are in right now. Carter is a legend, an absolute legend in chart analysis, which makes him as close to a fortune teller as we can get on Wall Street. So today we dig into what he's seeing in the charts that signaled the sell-off, what the markets are telling us now post-Liberation Day, and how tariffs might help or hurt key industries.

3:59We also dig into why certain defensive sectors might be your portfolio's new best friend and how even in rough markets, there are smart plays to be made. Carter actually did a really fun show and tell with me over Zoom, and he gave me a live analysis of the market with visuals and charts and all the good stuff. It's hard to follow in an audio only episode. So if you want that part of the show and tell, and also if you want to learn how to read charts like Carter, I published the clip on YouTube, which you can find in the link in the episode description. But first, the big picture with Carter.

4:31carter braxton worth welcome to money rehab thank you okay let's talk money and what's going on in the markets right now i feel like i need a volume i actually looked in my medicine cabinet i was like what kind of relaxing thing do i have here it is wild sauce yes volatility be one word to characterize it but also red right so we've we've had a great market for three years i guess if you think about the last real drawdown was the 2022 bear market. The S &P declined 27%, the Nasdaq 100 37. And since those lows in the autumn of 2022, for three years, we've been ascending and ascending aggressively to the point where, of course, those who get into valuation, we reached just four or five months ago the highest price to sales ever recorded in the S &P 500 and the Russell 3000.

5:24And now, of course, that excess is being expunged. You actually called the S &P 500 sell-off before it happened in early March. What were you seeing in the markets that made you draw that conclusion? Well, for starters, you're very kind to invoke or recall a good judgment. I have all sorts of bad judgments, things that go terribly wrong. This was a good one. I'm pleased with this particular recent effort. The principle that informed that decision basically in January, December, January, was that the breadth was deteriorating. Now, people say, well, there's always an issue with breadth, which is a way of measuring market health.

6:04And so we have had for a long time great marquee names, right, household names, Apple and Microsoft and Google, and they've even named them a group, Magnificent Seven, right, have led so much of the equity market. people, and perhaps rightly so, well, it doesn't matter that others are lagging and not keeping up as long as these champions are carrying the team, all is well. But usually when you have divergence between the performance of an aggregate, an index, dominated by a few big outperformers, versus the constituents diverging and not performing, it invariably ends with weakness in the index.

6:47And what was happening in December, really started in October, is that individual stocks started to put in their peaks. So right now, we know that the sell-off in the S &P, it starts at the index level on the 19th of February, only six weeks into it. But for instance, the semiconductors peaked in July. Microsoft peaked in August. I mean, individual securities were starting to roll and stall and starting to basically turn over and head lower way before the index. And so, for instance, right now, the index itself is only down, what, 12 %? If you were to look at the Russell 3000, it's important to talk about that because that represents 98 % of the investable capital in the United States.

7:29The S &P 500, obviously, not as broad and big. And if you look at that index, the Russell 3000, the entire shooting match, It peaked on the 19th of February is down 15, 12, 15 % or thereabouts. But the median performance of all constituents is down 38, meaning we're well into a bear market. It's been going on for months. And the individual stock or player on the team has been in real trouble. Only now is it coming out at the index level. So if I could put that great analysis into other words. Basically, you are seeing the big components of the index. So if I bought VOO or SPY, which tracks the S &P 500, that was not turning around as quickly as the big companies within the index.

8:19So NVIDIA, you know, you mentioned Microsoft hit their peaks and then they kind of reverted back earlier than the overall index did. And so that showed you that the index was next. It would be like watching a sickness, looking at 100 people in a room and one person, you just don't think anything's wrong. And now everyone's sick. But it turned out if you look like, wow, that guy was sick three weeks ago. She was sick six weeks ago. Meaning it doesn't come out at the aggregate level. All of a sudden, it starts slowly. It's under the surface. Individual securities start to underperform, start to roll over, start to stall, start to decline, even as the index goes higher.

9:00The principle is this. Let me just say it this way. The parts composed the whole. The whole looked okay to the maybe casual observer. We're making new highs in January, but the parts were rolling over. So the individual companies or the big companies are leading indicators to the overall index, what's going to happen there. And the bigger the companies, the more of a reaction that it will have eventually. It seems like those are the earthquakes and then there's the aftershocks of the overall index. Maybe I'm mixing my metaphors here. No, I mean, look, there's so much money and so few names, the top 10 names.

9:40Let me put it this way. If you went back to the night, about 50, 60 years, if you looked at the weighting of the top 10 stocks, and people say, oh, it's so much money and so few to have, but it's always high-end top-weighted. So if you go back the last 50 years, the top 10 stocks are on average 20 plus percent weight, meaning life sorts out winners and losers. It's just the way it is. A small hardware store gets acquired by a bigger hardware store. A bigger, better software operator takes over another. We're always going towards bigger things, concentration. That's the way it is. And so the top 10 stocks, whether it was IBM in its heyday or GE or Cisco in 07, top 10 stocks, always about 20 % weight.

10:20But what started to happen this go-round in the past 18 months is they were 30 and 33%. So much so that now that they're selling off, that's why the market is finally succumbing. So you predicted that this was going to happen months ago, but now it's almost like an insult to injury reaction with Liberation Day. We're talking on Liberation Day. What are you seeing in the charts right now? Because the market was declining, we were having really bad days, and now this is just like, you know, kick them while it's down. Yeah. I mean, over time, and everybody knows this, markets go up. There are more Oreo consumed 10 years from now than now, more Gillette razors, more people.

11:04There's prosperity, there's growth, and that's figuring out who you are in the market. But if you are a trader and you spend time trying to zig and zag, trying to study sequences, the current sell-off at the index level is highly unlikely to stop here. Okay. So can we talk through which of the industries you think are going to be helped or hurt by tariffs. You mentioned consumer products like, you know, razors and Oreo cookies. And that's a classic playbook. There was an expression, soap and cereal is the most defensive thing, soap and cereal. And what that means is if you look at companies like Nabisco that sell crackers or Colgate, we have 170, 200-year-old companies in this country that literally sell soap, domestic household things, and food products.

11:51Now, those are the most defensive things at all. People consider it healthcare defensive. Like P &G or J &J. Exactly. Colgate or Clorox or a General Mills cereal or that sort of thing. Healthcare is relatively new. We don't have healthcare companies that are old like that. 150 years ago, healthcare was, okay, bite on this stick because we're about to saw your leg off. We don't have anything else to offer you. Point being, they're not defensive pharmaceuticals the way soap and cereal is defensive. Classic staples. And you'll see that now in this current drawdown, what is going down not as much?

12:23Soap and cereal. That's consumer staples, utilities, very defensive names. And all institutional managers know this. And if you cannot hold cash, if you're concerned and you're selling some Apple or selling some Google or selling some Meta or selling some Tesla, by mandate, you're not allowed to hold the cash. They have cash managers, different product, different things. So that money must go back by the close or the next day by the close. And so you see rotation. It's always a part of markets. And institutional money will rotate to defensive things because on a beta adjusted basis, even if everything goes down, those stocks go down less.

12:58And you're seeing it in the market now. Here's the thing from March 30 saying, look, it's official, we're in a bear market. Just to talk about the statistics, the weak form of analysis in terms of charting and tennis is to look at an index. That's like if you went to the doctor, I went, and I walked in, the guy from nine feet away said, yeah, you look okay. I do. I look okay, But you don't know about my blood pressure, whether I have diabetes or gout or cholesterol. You cannot study a patient by doing that. You have to get in the chair, get in the gown, and then they take your blood pressure and they poke and prod.

13:28That's what this is. The weak form is saying, oh, the index is down only 9, 10. That's nothing. Underneath the surface, it's been massive deterioration and there's more to come. And if you're concerned about this downside, what does that mean for you guys? Are you shorting the market? Oh, yeah. Well, clients have been short. So I have two types of institutional clients, and those are pension plans. Those are long only mutual complexes. Those are hedge funds. Those are family offices, endowments, and then individual investors. Now, this is not random. We reached the highest price to sales recorded, even higher than dot com, 1929, March 2000, February 2025.

14:08And we have hit our head to the penny at that line. Now, how big a drawdown? Why not 20 %? That's garden variety, normal. Some people think it's going to be 50. I can't speak to that. I think that's unknown. But I am very confident in saying that the current sell-off is highly likely to stop here. Unlikely, right? Not likely to just be over. So where does it go? Oh, at least 20%. Thank you, Carter. Can we play a quick game of bullish or bearish rapid fire? I'm ready. Bullish or bearish on Tesla? Tesla's just lost 50 % of its value. Tesla has made no progress in four years. I'm a seller. Okay. S &P 500.

14:47Bearish, lower. About to 48, 4850 or thereabouts. Gold. Gold. Had a huge surge in 2019 and 20. Gold was sideways for four years and gold's had a similar surge. That which was hated and ridiculed and scorned is now loved. It's on the cover of the Wall Street Journal. We're backing away from it. We're going to let someone else trade that here. We think it's crowded and at risk. How about Meta? I think that a general statement that is worthwhile, I fear, is that there's nothing to be lost by postponing all new buying. If someone's that cost average down every month and plays golf instead, do it every month.

15:25But you have to know who you are in the market. NVIDIA. NVIDIA. Now, for instance, look at the insurance stocks. Look how good Chubb is. Look how good AIG is. They're very defensive. Look at Berkshire Hathaway. there's a reason for this right they're the only thing even with all the insurance craziness and very defensive fires and disasters so a place to hide there's a there's a good etf if you wanted to you know it's kie and that picks up aig and progressive and chubb and all state and so forth and so on how about apple getting beat down with the tariffs apple i'd nibble how about nike thank you that's an unhappy that's unhappy and and sometimes this happens great franchises, Nike, Disney.

16:06It's tempting always to think it's cheap. So Nike is the same price it was in 2015. It's down 2025. So adjusted for inflation, Nike's lost about 40 % of its value. And that's a disaster. I wouldn't step in and buy that. Why? Just because it's down? There's no thesis. Just one of the oldest rules of the book, hard to do. I'm constantly holding my own finger off the buy button. Don't buy stocks in downtrends. Just don't do it. But what about buy low, sell high? Yeah, those are idioms and adages that they say they're melodious. They sound good in the air, but they're not really real. Stay away from this.

16:43I wouldn't buy this. Don't buy stocks in downtrends. It's a pretty good rule. I struggle with myself. I'm always tempted. This is so cheap, I got to buy it. Don't do it. So what do you do instead? Is there something that you are bullish on that I didn't mention? I just showed you one of the great companies in the market. Insurance stocks are fantastic. Even with all of the craziness in the world and all of the natural disasters. Yeah, well, there's some are life health insurers. They're not, Affleck doesn't care about disasters. You're talking about property casualty. That's a different kind of thing.

17:09But MetLife, Peru, Chubb, Chubb is, you know, doing, insuring antique clocks and that kind of thing. Case by case, they're not all great. But again, this is a very fine area of the market to be in right now if one has to be long. We end our episodes, as you know, Carter, with a tip that listeners can take straight to the bank. It could be anything that we talked about today around technical fundamental analysis, whether to buy, how to react to the news, anything. The thing that I would say, if you really don't change your stripes, and that is the single most important thing. So someone told me once, there's only three kinds of hands in the market.

17:47There's weak, weak, there's weak, strong, and there's strong hands. You can be two of the three, but you can't be one of the three. So let's talk about it. Weak, weak is this. Ready? So weak, weak is this. We buy a stock at 10. It's 11. Feeling good. It's back to 10. It's 12. It's 11. It's 10. It's 950. It's nine. I don't want to walk away. Meaning you're willing to acknowledge error, move quickly. Bought at 10. It was 11. We didn't get it. Now it's 950. Walk away. Weak, weak. Just hot potato. That's fine. And then there's strong hands. We buy it at 10. Goes to 11. Feeling good. We think it's worth 30.

18:26Then it goes to 12, but it's back to nine now. It's back to eight. We buy some more. It's down to seven. Fine. We're confident. We think it's worth 30. Buy some more. It goes to five. It's cut in half. We bought it at 10. It's five. We're buying more. And ultimately we're vindicated, the thing that you're talking about. And it comes out turns and it goes to 30. That's strong hands. You took it. The third thing you cannot be is weak, strong. You think you're strong, but you're not. So you buy a 10 and then it's 11, then it's 10, then it's 11, then it's nine. And the other guy walks away. Weak, weak.

18:56She walks away. Get rid of it. Don't want it. The weak, strong is I can handle nine. Then it's at eight. I don't know. I don't know. Then it's at seven. I think I'll buy some more. Okay. I should do it. I know I should do it. Buy some more at seven. Then it's six. Oh, this is bad. That's five. All right. I got to get out and selling it all. That's a disaster. That's not knowing who you are in the market. It's okay to buy it and be wrong. Buy it at 10, sell it at 950. We're wrong. Weak, weak. Just don't care. Or strong. We're buying at 10. We think it's worth 30. It goes to seven. We'll buy more.

19:22It goes to five. We'll buy more. We're confident. We did the work. The team is smart. We know what we're doing. And it merges like a phoenix. It goes to 25. You make money. But weak, strong. I think I'm strong. But you're really weak. And this is a mental thing. You buy at 10, and eight, and then you walk away at five. It's a disaster. It can't be weak, strong. Weak, weak, or strong. Weak, strong, no good.

19:58Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's Executive producer is Morgan LaVoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself.

20:32which is the most important investment you can make.