🚨 “Markets Could Drop 17%” Amplify CEO Warns of Q2 Pain

Financial markets are entering the second quarter under pressure from geopolitical tensions, shifting interest-rate expectations and seasonal weakness tied to the U.S. election cycle. The Iran war and closure of the Strait of Hormuz highlights concerns over oil supply disruptions and fading expectations for Federal Reserve rate cuts, factors that are shaping investor sentiment as the quarter unfolds.

“We came into the year expecting a double digit drop and that was really just based off the historical presidential election cycle,” said Christian Magoon, CEO and founder of Amplify ETFs, in an interview with AInvest's Capital & Power “On average, midterm election years are down about 17%.”

Magoon’s outlook is grounded in that historical pattern, which he said suggests the market may not yet have reached its trough. While major indexes have declined modestly so far this year, he emphasized that the second quarter has historically been the weakest period in the four-year cycle. “The worst quarter tends to be the second quarter…with an average decline of just over two and a half percent,” he said. “So we think that there could be still more pain.”

That cyclical weakness is now intersecting with geopolitical shocks. Oil markets have been unsettled by disruptions tied to tensions in the Middle East, a dynamic widely covered by The Wall Street Journal and other outlets. Magoon said those developments have already weighed on equities. “We’ve taken a pretty good shot from the oil shock as well as some of the AI disruptions,” he said.

Against that backdrop, Magoon cautioned against aggressive short-term buying. “I would say that buying the dip here, there’s likely to be, I think, more pain ahead,” he said, particularly for investors attempting to time the market.

Instead, he advised focusing on areas that benefit from current conditions. “If you’re buying the dip…you’re probably better off…buying a sector that benefits given this current conflict,” he said, pointing to “energy, basic materials, basically scarce assets in general.”

Magoon also pointed to a notable shift in monetary policy expectations. At the start of the year, markets were pricing in multiple rate cuts, but persistent inflation risks, particularly from energy, have altered that outlook. “We’ve gone from several rate cuts expected…to potentially one rate elevation here going forward because of this unknown inflation that could happen through oil,” he said.

That shift has implications for portfolio construction. Magoon argued that traditional allocations heavily weighted toward broad indexes may leave investors exposed to volatility. “I think hedging your equity portfolio makes a lot of sense,” he said, noting that strategies such as covered-call ETFs can help buffer downside risk.

He framed that advice within a broader behavioral observation about markets. “My philosophy of U.S. equity markets is temporary declines, permanent advance,” Magoon said, adding that investors often make costly mistakes by selling during downturns and missing subsequent recoveries.

In commodities, Magoon said recent weakness in gold reflects profit-taking rather than a fundamental shift. Meanwhile, Bitcoin remains range-bound. “It seems like we’re in the chop zone…between $60,000 and $70,000,” he said, citing limited liquidity and geopolitical uncertainty.

Looking ahead, Magoon expects markets to remain under pressure through midyear. “I think we’re flat to down over the next six months,” he said, projecting a potential 5% to 10% decline absent a geopolitical resolution.

Still, he sees a more constructive backdrop later in the year. “The fourth quarter in the election year tends to be one of the better quarters to be in the equity market,” he said, maintaining a “long-term bullish” stance despite near-term caution.

For investors, the message is clear, the coming months may test patience, but history, and Magoon, suggest the longer-term trajectory remains intact.