Navigating the Fog: 3 Key Investing Themes to Watch in Today’s Volatile Market

As we move through a period marked by heightened volatility and growing uncertainty, investors are understandably on edge. The S&P 500® Index remains in correction territory, and recent trade policy shifts have cast a long shadow over global growth expectations. But as any seasoned investor knows, it’s often when the market mood is darkest that opportunities begin to emerge.

Market history tells us that recovery frequently begins when sentiment is at its lowest, and that downturns often lay the groundwork for the next phase of growth. While it’s impossible to call the exact bottom, there are important signals and themes that can help guide investing decisions right now.

Based on my research and historical market data, here are three key investing themes to watch today, along with practical insights on how long-term investors might navigate the current uncertainty with confidence and clarity.

1. Poor Sentiment Can Be a Bullish Signal

Investor sentiment has deteriorated sharply in recent months—often a contrarian indicator that points to opportunity rather than danger. A prime example: earlier this year, less than 20% of respondents in the American Association of Individual Investors survey described themselves as bullish. This marked one of the lowest readings in decades, a level typically reached only during periods of extreme pessimism.

From a historical perspective, such readings are rare—they occur only about 2% of the time. But when they do, they’ve often been followed by substantial market recoveries. Specifically, when sentiment drops to these depths, the S&P 500 has gained an average of approximately 20% over the following six months.

Importantly, this shift in sentiment is not occurring in a vacuum. It’s happening alongside unprecedented uncertainty around trade policy. According to a widely cited index that tracks trade policy mentions in major newspapers, we recently hit an all-time high in uncertainty. While intuitively this might seem like a red flag for stocks, historical analysis paints a different picture. Since 1990, higher levels of trade policy uncertainty have actually correlated with stronger risk-adjusted returns over the subsequent 12 months.

Markets are, by nature, forward-looking. When bad news is widely known and deeply felt, it tends to be priced in quickly. That can create a fertile environment for gains—particularly for those with the discipline to invest when others are fearful.

Actionable Takeaway: Don’t abandon equities based solely on negative sentiment. Instead, consider it a potential setup for long-term gains—especially in well-diversified portfolios.

2. Credit Trends Point to Opportunities in Financials and REITs

Another positive development is the recent easing in business credit conditions. According to January data from the National Federation of Independent Business, fewer small businesses are reporting difficulty obtaining credit. This is significant because, historically, improvements in credit availability have been followed by accelerating loan growth—a potential tailwind for both economic activity and select sectors of the equity market.

Two areas in particular could benefit:

a. Real Estate Investment Trusts (REITs)

REITs are heavily dependent on access to credit for financing operations and expansion. Easier credit conditions often translate into lower borrowing costs and improved profitability. If loan growth continues to recover, REITs may see improved performance, particularly those with high-quality portfolios and conservative leverage profiles.

b. Financial Stocks

Financials, especially banks, typically benefit from rising loan growth and a more favorable credit environment. Historical data supports this: since 1978, when loan growth has rebounded from the bottom quartile of its historical range, financial stocks have outperformed the broader market by an average of 3.3 percentage points over the following year.

Moreover, valuations for financials remain compelling. Many names in the sector are currently trading in the lowest 25% of their historical valuation range. This means much of the bad news—including fears of an economic slowdown—may already be reflected in current prices.

Actionable Takeaway: Consider increasing exposure to financials and REITs, especially if you believe lending activity is on the upswing. Look for opportunities in well-capitalized banks and high-quality REITs with stable cash flows.

3. Caution Still Warranted in the Energy Sector

While poor sentiment can be a bullish signal for many sectors, energy stocks are an exception right now. The sector has lagged significantly, underperforming the S&P 500 by more than 20 percentage points over the past year. At first glance, this underperformance might seem like a buying opportunity. But history advises caution.

Whenever energy stocks have trailed the broader market by more than 15 percentage points over a 12-month period, they’ve typically continued to underperform over the next 12 months. This may suggest a deeper structural or cyclical issue rather than just short-term weakness.

A key factor is the dramatic decline in free cash flow. After a post-COVID surge that led to record highs in cash generation, energy companies have seen this key metric fall steadily over the past two years. Although free cash flow remains elevated relative to historical norms, the downtrend suggests there could still be further downside risk.

When free cash flow growth has fallen into the bottom half of its historical range, energy stocks have underperformed the market by an average of 1.2 percentage points over the next year. In short, the sector may still be recalibrating after an unsustainable run-up in the wake of the pandemic.

Actionable Takeaway: Avoid chasing energy stocks simply because they’re down. Focus instead on sectors with stronger underlying trends and more attractive long-term setups.

Conclusion: Navigating with Purpose, Not Panic

The market environment in early 2025 is undeniably complex. A correction in the S&P 500, ongoing geopolitical tensions, and lingering trade policy uncertainty have all contributed to a fog of pessimism. But smart investors know that uncertainty also creates opportunity.

By focusing on historical data and sector-level dynamics, investors can make more informed decisions—rooted not in fear or headlines, but in probabilities and patterns. The evidence suggests that sentiment extremes, credit trends, and sector divergences can provide meaningful guidance.

To recap:

• Poor sentiment may be a bullish contrarian indicator.
• Improved lending trends point to upside for financials and REITs.
• Caution remains warranted in the energy sector despite recent declines.

Above all, remember that successful investing requires patience, perspective, and a commitment to long-term goals. Market storms eventually pass—and those who stay invested, while adjusting their sails to shifting winds, are often best positioned to benefit from the calm and clarity that follow.

Disclosures: This article is for informational purposes only and should not be construed as investment advice. All investing involves risk, including the risk of loss. Past performance is not indicative of future results. Consult a licensed financial advisor for personalized guidance.