Terrified and Long

When Will Investors Capitulate?

Author

Michael Batnick
April 11, 2025

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“This market won’t bottom until we see capitulation.”

You’ll see a lot of that in the coming days and weeks. I strongly agree and disagree with parts of that sentiment.

Blackrock reported earnings this morning. Larry Fink said, “We have not seen any capitulation with any clients.” He’s not going to. If you’re looking for long-term investors to throw in the towel, you haven’t been paying attention.

In the five days leading up to (and including) the massive rally on Thursday, $10 billion came into VOO, 4x the normal rate. Another $19 billion rushed into SPY.

Eric Balchunas tweeted this astute observation on Thursday, when the S&P 500 had its 10th best day ever:

Market timing will never die bc humans but man it took one on the chin today. I have to imagine a lot more ppl just joined Vanguard's 'not changing course regardless of what i see or hear' camp. COVID rally did same thing- which could be why the inflows seem to get stronger with each new crisis.

Just keep buying isn’t just the name of Nick’s book; it’s become the mantra for millions of investors. In the United States, buying every dip has been rewarded for the last fifty years. It will take a long time for that muscle memory to fade. Don’t hold your breath.

The Vanguardians of the Galaxy, as Balchunas calls them, will not be deterred. They will just keep buying, come hell or high water.

But there is another group of dip buyers that does need to capitulate before we see a durable bottom. It’s the degens. They plowed $7 billion into levered long ETFs in the five days leading up to the tariff-pause. They need to chill.

For seven straight weeks they’ve plowed money into ETFs that go up twice as much or more as their underlying holdings. How much longer will they continue to touch a burning stove?

On the flip side, speculators are also plowing money into inverse ETFs, so the chart above only tells half the story.

This next one from Warren Pies shows that 50% of all speculative ETF volume (inverse and levered long) has been in inverse ETFs. This chart is a week old, so I assume we’re way higher now. Warren says that readings of 60% have a perfect one-year forward track record. I’m guessing we’re already there.

Know who’s not capitulating, ever? Dividend investors. Yeah, I get that they might not be the most tax-efficient way to generate income, but from a behavioral point of view, they’re great. Assuming the world doesn’t end, and the dividends keep hitting your account, investors focused on this strategy are more likely to stay the course when the volume goes to 11. We spoke about that, and all of the craziness of the past week, on the Compound & Friends with the great Jenny Harrington.