No transactions this month. I remain 100% in cash.

The S&P 500 is up 11% year-to-date and 19.5% from its March low, closing the week near all-time highs at 7,580. Its trailing earnings yield is 3.1%, the Shiller yield is approximately 2.4%, and the US 10-year Treasury yields 4.5%.

Meanwhile, the University of Michigan Index of Consumer Sentiment (UMSCI) – a monthly survey that gauges how optimistic or pessimistic American consumers feel about their personal finances and the broader economy – just hit a record low of 44.8 in May 2026.

Since consumer spending accounts for roughly 70% of U.S. GDP, sharp declines in this index often serve as a leading warning signal for weaker spending and potential economic slowdowns.

The index uses the healthy economic conditions of 1966 as its baseline level of 100. Readings below 70–75 indicate high pessimism, while readings below 50 are extremely rare. The current level of 44.8 is the lowest in the index’s 74-year history.

There have been 15 episodes of 15%+ drops from peak since 1952. Below is some relevant information on those periods, the market return after the 15% sentiment drop, and the maximum market drawdown from peak to trough. Investor commentary during some of those times is included as well.

1956 – 1958 (Eisenhower Recession)

Sentiment Peak: Nov 1956 (100.2) / Shiller 17.1

Market Peak: Aug 1956 (48.5)

Market Trough: Oct 1957 (41.2)

Bear Market Status: Yes (14 months; depth -21.6%)

Sentiment Trough: Feb 1958 (78.5)

15% Sentiment Drop First Reached: Nov 1956

S&P Return from 15% Dip to Trough: -12.8%

1969 – 1970 (End of Go-Go Years / Recession)

“Maybe I am merely suffering from a lack of mental flexibility. (One observer commenting on security analysts over forty stated: ‘They know too many things that are no longer true.’) However, it seems to me that: (1) opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years; (2) our $100 million of assets further eliminates a large portion of this seemingly barren investment world, since commitments of less than about $3 million cannot have a real impact on our overall performance, and this virtually rules out companies with less than about $100 million of common stock at market value; and (3) a swelling interest in investment performance has created an increasingly short-term oriented and (in my opinion) more speculative market.” – Buffett (Partnership letter dated May 29, 1969)

Sentiment Peak: Feb 1969 (98.2) / Shiller 21.0

Market Peak: Dec 1968 (106.5)

Market Trough: Jun 1970 (75.6)

Bear Market Status: Yes (18 months, depth -36.1%)

Sentiment Trough: May 1970 (75.4)

15% Sentiment Drop First Reached: May 1969

S&P Return from 15% Dip to Trough: -25.9%

1972 – 1975 (Nifty Fifty, Stagflation / Recession)

“Can such heedlessness go unpunished? We think the investor must be prepared for difficult times ahead—perhaps in the form of a fairly quick replay of the 1969–1970 decline, or perhaps in the form of another bull market fling, to be followed by another catastrophic collapse.” – Ben Graham in the 1972 revision of The Intelligent Investor

“Going into 1972, Berkshire’s insurance company had a portfolio worth $101 million, of which $17 million was invested in stocks. Buffett had put the rest in bonds.” – “Buffett: The Making of an American Capitalist” by Roger Lowenstein (pg. 148)

“Indeed, it is nearly impossible to imagine Buffett’s quitting the partnership at the height of the Go-Go years, or jumping back in during the 1974 market depression, had he not read Graham’s liberating parable of Mr. Market. Buffett’s eulogy for Graham, written for the Financial Analysts Journal, stressed, precisely, the endurance of Graham’s approach:

In an area where much looks foolish within weeks or months after publication, Ben’s principles have remained sound – their value often enhanced and better understood in the wake of financial storms that demolished flimsier intellectual structures.” – “Buffett: The Making of an American Capitalist” by Roger Lowenstein (pg. 201)

Sentiment Peak: Nov 1972 (90.7) / Shiller 18.3

Market Peak: Jan 1973 (118.4)

Market Trough: Dec 1974 (67.1)

Bear Market Status: Yes (21 months, depth -48.2%)

Sentiment Trough: Feb 1975 (57.6)

15% Sentiment Drop First Reached: May 1973

S&P Return from 15% Dip to Trough: -34.1%

1978 – 1980 (Oil Crisis / Recession)

Sentiment Peak: Sep 1978 (80.4) / Shiller 9.9

Market Peak: Sep 1978 (103.9)

Market Trough: Nov 1978 (94.7)

Bear Market Status: No (depth -19.4%)

Sentiment Trough: May 1980 (51.7)

15% Sentiment Drop First Reached: Dec 1978 (66.1)

S&P Return from 15% Dip to Trough: +0.2%

1980 – 1982 (Volcker Bear Market / Recession)

Sentiment Peak: Aug 1981 (77.2) / Shiller 8.4

Market Peak: Nov 1980 (135.7)

Market Trough: Aug 1982 (109.7)

Bear Market Status: Yes (21 months, depth -27.1%)

Sentiment Trough: Nov 1981 (62.5)

15% Sentiment Drop First Reached: Nov 1981 (62.5)

S&P Return from 15% Dip to Trough: -7.9%

1990 (Gulf War / Shock Recession)

Sentiment Peak: Apr 1990 (93.9) / Shiller 16.8

Market Peak: Jul 1990 (360.0)

Market Trough: Oct 1990 (307.1)

Bear Market Status: No; depth -19.9%

Sentiment Trough: Oct 1990 (63.9)

15% Sentiment Drop First Reached: Aug 1990

S&P Return from 15% Dip to Trough: -5.8%

S&P Earnings Growth (Annualized): -12.5%

1991 – 1992

Sentiment Peak: Sep 1991 (83.0) / Shiller 18.4

Market Peak: Jan 1992 (416.1)

Market Trough: Apr 1992 (407.4)

Bear Market Status: No; depth -6.1%

Sentiment Trough: Jan 1992 (67.5)

15% Sentiment Drop First Reached: Nov 1991

S&P Return from 15% Dip to Trough: N/A

2000 – 2002 (Dot-Com Bubble, 9/11 / Recession)

“Even then, valuing the market has nothing to do with where it’s going to go next week or next month or next year, a line of thought we never get into. The fact is that markets behave in ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though, value counts.” – “Mr.Buffett on the Stock Market” (November 22, 1999)

Sentiment Peak: Jan 2000 (112.0) / Shiller 43.8

Market Peak: Aug 2000 (1,485.5)

Market Trough: Oct 2002 (854.6)

Bear Market Status: Yes (31 months, depth -49.1%)

Sentiment Trough: Oct 2002 (80.6)

15% Sentiment Drop First Reached: Mar 2001 (94.7)

S&P Return from 15% Dip to Trough: -23.4%

2004 – 2005 (Fed Tightening)

Sentiment Peak: Jan 2004 (103.8) / Shiller 27.7

Market Peak: N/A

Market Trough: N/A

Approx. Total Drop: N/A

Bear Market Status: None

Sentiment Trough: Oct 2005 (74.2)

15% Sentiment Drop First Reached: Apr 2005 (87.7)

S&P Return from 15% Drop to Trough: N/A

2007 – 2008 (Subprime Mortgage Bubble / Recession)

“Right now we’re pretty cautious. We actually have the biggest cash position we’ve ever had. We’re probably about 40 percent in cash and we never run cash… I’m not short, because I’m nervous about the liquidity. The market can go up, so that’s why I have this cash, which is a great hedge; nothing else is as great a hedge. You can learn anything you want at Carnegie Mellon, I’m telling you right now, you can’t hedge yourself like being only cash at a time.” – David Tepper at Carnegie Mellon University (November 12, 2007)

“The S&P now is off 15% from its peak, yet Schloss says he still doesn’t see many bargains. He’s 30% in cash. A recession, if it comes, may not change much. ‘There’re too many people with money running around who have read Graham,’ he says.” – “Experience” by Bernard Condon (February 11th, 2008)

“Moving carefully has paid off handsomely over Schloss’s long investing career, but while you may think that means an all-bond portfolio, you’d be wrong. A 1 percent return, as is the case with government bonds now, “is no way to live,” he says. So Schloss, who has about half his portfolio in stocks, is still keeping an eye out for companies like International Paper, which he bought because it was trading at a fraction of recent highs, paid a dividend and had little debt. “Debt bothers me,” he says. “The companies in trouble are usually the ones that owe a lot of money.” – “Stock Pros Who Survived the Depression” by Reshma Kapadia (April 15, 2009)

Sentiment Peak: Jan 2007 (96.9) / Shiller 27.2

Market Peak: Oct 2007 (1,539.7)

Market Trough: Mar 2009 (757.1)

Bear Market Status: Yes (17 months, depth -56.8%)

Sentiment Trough: Nov 2008 (55.3)

15% Sentiment Drop First Reached: Oct 2007 (80.9)

S&P Return from 15% Drop to Trough: -47.2%

2011 (European Debt Crisis)

Sentiment Peak: May 2011 (74.3) / Shiller 23.1

Market Peak: Apr 2011 (1,331.5)

Market Trough: Oct 2011 (1,207.2)

Bear Market Status: No (depth -19.4%)

Sentiment Trough: Aug 2011 (55.8)

15% Sentiment Drop First Reached: Aug 2011 (55.8)

S&P Return from 15% Drop to Trough: -0.3%

2020 (Global Pandemic)

Sentiment Peak: Feb 2020 (101.0) / Shiller 30.7

Market Peak: Feb 2020 (3,277.3)

Market Trough: Mar 2020 (2,652.4)

Bear Market Status: Yes (1 month, depth -33.9%)

Sentiment Trough: Apr 2020 (71.8)

15% Sentiment Drop First Reached: Apr 2020 (71.8)

S&P Return from 15% Drop to Trough: N/A

2021 – 2022 (Post-Pandemic Inflation & Fed Tightening)

“There’s not really any great asset classes now: David Tepper” — (October 21, 2021)

Sentiment Peak: Jun 2021 (85.5) / Shiller 36.7

Market Peak: Dec 2021 (4,674.7)

Market Trough: Oct 2022 (3,726.1)

Bear Market Status: Yes (9 months, depth -25.4%)

Sentiment Trough: Mar 2022 (59.4)

15% Sentiment Drop First Reached: Aug 2021 (70.3)

S&P Return from 15% Drop to Trough: -14.6%

2024–2025 (Tariffs)

Sentiment Peak: Mar 2024 (79.4) / Shiller 33.8

Market Peak: February 2025 (6,038.7)

Market Trough: April 2025 (5,369.5)

Bear Market Status: No, depth -18.9%

Sentiment Trough: May 2025 (52.2)

15% Sentiment Drop First Reached: July 2024 (66.4)

S&P Return from 15% Drop to Trough: -3.1%

Current 2025 – 2026 Episode (as of late May 2026)

“Warren Buffett: We’ve never had people in a more gambling mood than now” – (May 4th, 2026)

Sentiment Peak: July 2025 (61.7) / Shiller 37.5

Market Peak: ?

Market Trough: ?

Bear Market Status: ?

Sentiment Trough: ?

15% Sentiment Drop First Reached: April 2026 (49.8)

S&P Return from 15% Drop: ?

Bear Market Episodes (>20% decline)

1956 – 1958 (Eisenhower Recession): Shiller 17.1 – Max drawdown -21.6%

1969 – 1970 (End of Go-Go Years): Shiller 21.0 – Max drawdown -36.1%

1972 – 1975 (Nifty Fifty / Stagflation): Shiller 18.3 – Max drawdown -48.2%

1980 – 1982 (Volcker Bear Market): Shiller 8.4 – Max drawdown -27.1%

2000 – 2002 (Dot-Com Bubble / 9/11): Shiller 43.8 – Max drawdown -49.1%

2007 – 2008 (Subprime Mortgage Bubble): Shiller 27.2 – Max drawdown -56.8%

2020 (Global Pandemic): Shiller 30.7 – Max drawdown -33.9%

2021 – 2022 (Post-Pandemic Inflation / Fed Tightening): Shiller 36.7 – Max drawdown -25.4%

Non-Bear Market Episodes

1978 – 1980: Shiller 9.9 – Max drawdown -19.4%

1990: Shiller 16.8 – Max drawdown -19.9%

1991 – 1992: Shiller 18.4 – Max drawdown -6.1%

2004 – 2005: Shiller 27.7 – No meaningful decline

2011: Shiller 23.1 – Max drawdown -19.4%

2024 – 2025: Shiller 33.8 – Max drawdown -18.9%

Note: 4 out of 6 non-bear episodes came within 1.1% of a 20% decline.

The market has recovered from these declines with speed. Raising cash in speculative markets is only valuable if you deploy it when stocks are subsequently loathed.

A 15% drop in the UMCSI has historically been a useful warning signal (roughly 86% hit rate for meaningful market declines), but a poor timing tool. It tells you the odds of trouble are high – especially at elevated valuations – but it does not tell you exactly when that trouble will arrive or how long it will persist.

Like most market patterns, this one is imperfect and has tended to overstate downside risk in some episodes, though it still offers somewhat of a probabilistic signal over random chance. All backtests should be taken with a grain of salt.