Time-Based Capitulation

Investors,

In recent weeks, I’ve highlighted a concept that I call “time-based capitulation”.

Unlike price-based capitulation, this form of capitulation occurs when market conditions become so stagnant and droll that investors eventually leave from boredom.

Or worse…

If the market goes sideways for too long in the face of new risks, one of those risks is eventually big enough to cause investors to throw up their hands and walk away.

Think of it in the inverse… if investors were making money hand over fist, with the market grinding higher irrespective of new headline risks, then why would a new risk thwart the ongoing levels of greed and FOMO in the market?

Unfortunately, we don’t have those wide eyes in this environment.

And how could we given that the S&P 500 is trading at the exact same price as it was on October 3rd, 2025… or the Nasdaq trading at the same price as it was on September 22nd, 2025?

The market rotated out of mega-caps, tech, and growth, in favor of value, industrials, and healthcare, with the spotlight now being aimed at energy stocks.

Naturally, investors have grown tired in this environment.

By the very nature of the largest stocks having the most amount of ownership, most investors haven’t been positioned in the ever-changing rotation amidst the sectors.

I’ll be the first to admit, I didn’t sell my growth stocks & mega-caps in favor of energy.

That’s just not a game that I’m interested in playing.

Instead, I’ve been willing to ride out the volatility and stagnation because I simply accept that this is what long-term investing requires.

There was a time in my investing career that I tried to time those rotations perfectly.

But I learned the hard way that musical chairs isn’t a game that I can consistently win.

In recent months, I’ve had the following stance on equities:

While there have been reasons for concern, with a variety of warning signals flashing, the uptrend has been intact despite the weakness in risk-on vs. risk-off ratios. This deterioration has given me some worry, especially as other negative signs flashed, but I’ve had to trust the fact that the market is still in an uptrend. Therefore, I’ve acknowledged that the market may need to cool off in order to produce a higher low.

I’m talking about the weakness in VUG/VTV, RSPD/RSPS, MGK/RSP, SPHB/SPLV, etc.

Here’s what I mean…