Of Predictions and Bears
By Rob Overton, CFPⓇ, CAPⓇ
A few months ago I rode my bike to work, which is something I often do. My morning-commute decision tree usually involves swiping down from the top of my phone and clicking on The Weather Channel app to get the hourly forecasts. This particular day the 9am and 5pm forecasts were perfect for my cycling commute! That is until about 3:00 in the afternoon when the sky outside my window turned dark. Fortunately, my wife was able to pick me up so I didn’t have to ride home in the downpour. So much for that 0% chance of rain! (To be fair to The Weather Channel, its wrong-ness was only noteworthy because it is almost always right.)
As humans, there is something about forecasts that we love. This carries over into the world of economics and investing, where a whole media industry has risen up to provide you with 24/7 predictions of the economy’s next zig and the stock market’s next zag. As a rule, we find that pessimistic forecasts are easier to find than optimistic ones. Given that we are more drawn to negative news than to positive, I suppose it only makes sense that our media outlets would seek to scratch that itch.
In 2023 we have received many questions that are some variant of ‘What do you think the market will do in light of… inflation, bank failures, Ukraine, the debt ceiling, the election, etc?’. Often these are precipitated by some news outlet publishing a prediction of imminent stock market catastrophe. Out of curiosity, I decided to look back through the last decade and a half to see how predictions of this sort have turned out.
Lest anyone accuse me of cherry picking, I decided to start in 2007, right before the onset of the Great Recession. I will note the S&P 500 value after each prediction so you can see how stubbornly the values of these 500 companies have persisted in rising over time. For context, the closing value of that index as I write on September 13th is 4,4671.
2007, Jan. 11 – ‘7 Reasons to Sell’2 – Lamont Trading Advisors – S&P 500: 1,423
Ten months before the market high of 2007, the author gives seven reasons to sell equities. Unfortunately for his track record, in June of 2009, three months after the bear market low, the same author wrote ‘The Great Comparison’3, predicting that we were still in the opening stages of a multi-year market decline akin to the great depression.
2008, Nov. 5 – ‘The Man Who Saw it Coming: Meet Dr. Doom’4 – ABC News – S&P 500: 952
2009, March 6 – ‘Obama’s Radicalism is Killing the Dow’5 – Wall Street Journal – S&P 500: 683
Taken with the 2016 article below, this headline, written just three days before the bottom of the 2007-2009 bear market, reminds us not to let our political biases impact our investment temperament.
2010, Jan. 11 – ‘US Stocks Surge Back Towards Bubble Territory’6 – Business Insider – S&P 500: 1,146
2011, June 4 – ‘Rosenberg ‘99%’ Sure of U.S. Recession’7 – Fortune – S&P 500: 1,300
2012, March 27 – ‘Robert Shiller Eyes Another Tech Bubble’8 – Yahoo! Finance – S&P 500: 1,412
2013, March 30 – ‘The Corruption of Capitalism in America’9 – New York Times – S&P 500: 1,569
David Stockman writes: “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is”.
2014, May 6 – ‘Time to Worry About Stock Market Bubbles’10 – New York Times -S&P 500: 1,867
2015, Sept. 29 – ‘Carl Icahn Says Dysfunction in Washington and Corporate Boardrooms Could Cause Market Collapse’11 – Forbes – S&P 500: 1,884
2016, Nov. 9 – ‘Paul Krugman: The Economic Fallout’12 – New York Times – S&P 500: 2,163
Mr Krugman writes, ‘It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? … A first pass answer is never’. In fact, as Mr. Krugman was writing, a strong rise in the markets had already begun. It would last into 2018. When taken with the 2009 headline above this is a reminder to be careful about letting political biases impact our investment temperament.
2017, Aug. 9 – ‘Is the Stock Market in a Bubble?’13 – USA Today – S&P 500: 2,474
2018, Aug. 6 – ‘Why the S&P 500 May Fall More than 60%: Hussman’14 – Investopedia S&P 500: 2,850
2018, Dec. 21 -‘Hedge-fund Veteran Mark Yusko is Predicting a Dreadful Bear Market in
2019’15– CNBC – S&P 500: 2,416
2020, March 25 – ‘Coronavirus Hyperinflation Risk Looms, Buy Gold: Peter Schiff’16 – Fox Business – S&P 500: 2,475
Writing two days after the COVID-19-induced bear market bottomed out, Mr Schiff notes that ‘[What the Fed is doing] ensures that this recession, depression that we’re entering is going to be extremely brutal in the inflation that is going to ravage the economy…’. His advice? Buy gold. For what it’s worth, from that day to this, gold prices have risen 17%, which is impressive. But less impressive than the 80% increase of the S&P 500 in the same period. This shows that market projections can be wrong even when the predictor’s concerns come to pass!
2021, January 25 – ‘A Stock Market Correction May Be Around the Corner. Here’s How Investors Should Play It’17 – Fortune – S&P 500: 3,855
2022, Nov. 21 – ‘This Bear Market Still Hasn’t Bottomed, Says David Rosenberg’18 – CNBC S&P 500: 3,949
… written 40 days after the bear market bottomed at 3,577 on October 12th.
Okay, so I’ve piled on a bit. But I must admit it was fun to look these up. I felt a brief kinship with Travis Kelce, who reminded the media after the Chiefs’ Super Bowl victory that they all poo-pooed the Chiefs at the beginning of the season (his language was stronger than mine).
What can we do with this? What are our action items?
- Step one is to tune out the noise! When it comes to short-term market predictions, we prefer to disregard all of them, favoring Warren Buffett’s statement: “We do not have, nor have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.”
- Step two is to realize that bear markets, while not fun, have historically been normal and temporary. A stock-market decline of 20% or more has historically happened about every 4 to 5 years, temporarily interrupting the long-term upward trend of stock prices. In fact, in the years listed above, while the S&P was rising from 1,423 in 2007 to 4,467 in 2023, there were 5 bear markets (2007-2009, 2011, 2018, 2020 and 2022). Of course, as I have gleefully noted above, they tend to be unconnected from any media predictions of their onset.
- Step three is to proactively allocate your account to avoid being forced to sell stocks while they are down. We have discussed with most of you that we at Financial Professionals, Inc. like to keep roughly 6 years of our clients’ expected withdrawals in bonds and cash. This helps us to tune out the noise as we have built a buffer to avoid being forced to sell our stocks, and occasionally to allow us to purchase more stocks, when the inevitable bear markets come.
So when it comes to market and economic predictions, I say you should turn off the TV and enjoy an evening beverage in the fall air! But when it comes to riding my bike to work, I will still be checking the Weather Channel before strapping on my helmet.
When it comes to how frequently you should monitor your investments, there are two unhealthy extremes, with ‘never looking’ at one end of the spectrum and ‘obsessively looking’ at the other end. May we suggest using our quarterly commentary as a prompt to review your accounts, helping you avoid both extremes? You can review your current accounts by logging into www.cirstatements.com. If you have never logged into that site, please call our office and we will be happy to help you register.
- S&P 500 closing data and gold prices taken from finance.yahoo.com
Also Used for Reference
- ‘Financial News Doesn’t Rhyme, but it Does Repeat Itself’ – Ben Carlson https://awealthofcommonsense.com/2017/10/financial-news-doesnt-rhyme-but-it-does-repeat-itself/
- ‘The Armageddonists’ – Michael Cembalest https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-armageddonists.pdf
- ‘The Armageddonists Revisited’ – Michael Cembalest https://assets.jpmprivatebank.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-armageddonists-revisited.pdf