Investor sentiment—not fundamentals—is what drives financial markets today.
If you need evidence, just look at the past decade: we’ve seen stocks climb relentlessly despite sluggish earnings, geopolitical instability, and ballooning debt. But when sentiment shifts, even slightly, the air comes out of the balloon fast and hard.
That’s precisely what we’re starting to witness right now.
Over the past week, cracks have emerged in investor confidence, and they are deepening. The CNN Fear & Greed Index, a compilation of seven different indicators that measure some aspect of stock market behavior, now sits at 21, firmly in the “Extreme Fear” zone. And the University of Michigan Consumer Sentiment Index has dropped to its lowest point in 15 months. These statistics indicate growing anxiety among everyday Americans.
These aren’t abstract numbers. They’re huge red flags waving high in plain sight.
The race for liquidity: when fear becomes action
When fear takes hold, rationality often exits the room.
Investors don’t slowly, methodically reduce their exposure, they rush for the exits in an effort to derisk and avoid loss. The “run to liquidity” quickly becomes a stampede, and in that moment, the question becomes not if you’ll lose money, but how much.
We’ve seen this movie before.
The 2008 financial crisis was a case study in how interconnected all asset classes become in times of distress. You might be in a “safe” sector, but when global liquidity dries up, everyone gets hit.
“But David, you’re in alternative investments—what are you worried about?”
Yes, I’ve been a vocal advocate for alternative investments—real estate, private lending, business partnerships, and other hard assets over financial instruments, and I remain so today. But let’s be clear: no market is an island.
All are interconnected through capital flow, liquidity, and sentiment.
Even if you’re diversified across asset classes and segments of the capital stack, like I am, you’re not immune to the negative wealth effect. The broad-based psychological and financial contraction that occurs when markets tank.
Just consider this:
- The S&P 500 is down over 5% in April, snapping a five-month winning streak.
- 10-year Treasury yields remain elevated at around 4.4%, reflecting persistent inflation pressure and reducing appetite for risk assets.
- The Preferred Inflation Gauge, which is more accurate because it tracks a broader range of goods and services than the CPI, is at 2.7% year over year, well above its 2% target.
- According to the New York Fed, U.S. household debt passed $17.5 trillion in Q1 2025. This does not account for corporate or national debt.
- Credit card delinquencies have climbed to 3.1%, marking the highest rate since 2012. This means more Americans are relying on credit for daily living expenses.
This is a classic setup for a “rolling reset.”
What this means for your money.
Wealth destruction doesn’t only happen on Wall Street, although that’s where we see it first. If you’ve looked at your IRA lately, you’ve certainly seen it already.
When public equities fall, retirement accounts shrink. When credit tightens, consumer spending and business investment are limited. This creates downstream effects that impact private capital markets, real estate, and small businesses—even if they’re not directly correlated to the S&P.
So while I continue to steer clear of traditional financial assets, I’m not oblivious to macro risks.
I’ve built my alternative portfolio to weather downturns through diversification, private placements, first-position liens, and cash-flowing assets, but that doesn’t mean I’m cavalier. Like you, I’m still at risk, though my strategies tend to decrease that risk dramatically.
So what’s the answer?
One word: caution.
This isn’t the time to be speculative. It’s the time to:
- Stay liquid where possible.
- Stick with income-producing, asset-backed strategies.
- Focus on capital preservation over aggressive growth.
- Know your operators, sponsors, and partners intimately.
- Reduce or eliminate debt.
- Build buffers into your financial life.
Even for alternative investors, risk is not zero, and there’s no way to make it so, especially when the broader financial system is wobbling. The higher on the risk curve, the harder you fall when the system gets shaky.
We are not at the cliff’s edge yet, but we’re close enough to feel the breeze and must prepare accordingly.
