As a wealth management firm, we are inundated with a never-ending flow of predictions about what is going to happen in the markets.  We also understand that our clients are not isolated from the constant barrage of news, noise, and prognostications as we often have conversations with our clients regarding a so-called expert’s prediction on an upcoming market crash.  In today’s 24-hour news environment, with several financial television stations, radio networks, social media platforms, and countless publications, there is always someone willing to offer a gloom-and-doom outlook.  Unfortunately, there is now an entire industry of people who offer nothing but predictions that the financial sky is falling.  Like a broken clock, these doomsdayers are “right” every now and then when volatility increases and markets sell-off.  Sure enough, during these stressful periods the media loves to amplify these bearish voices.  Keep in mind that the media outlets are not paid to provide sound financial advice and negativity sells.

One of our favorite research pieces is called “The Armageddonists” from JP Morgan Asset Management.  Armageddonists are defined as the “market-watchers, forecasters, and money managers whose apocalyptic comments spread like wildfire in print and online financial news.”  JP Morgan published the original report with several failed bearish predictions over the period 2010 – 2016.  The most recent iteration includes eight dire predictions from notable market commentators during the beginning stages of the Global Pandemic.

The following chart shows the performance of the S&P 500 from January 2020 through March 2024, and it highlights the date of each gloom-and-doom prediction.  We know how this played out.  The world did not end during the pandemic and after declining over a 6-week period from February to March 2020, markets began to recover significantly.  Since the bottom on March 23, 2020, the S&P 500 has increased by over +150%.  Anyone who acted on the bearish advise by selling their equities and retreating to cash likely would have missed out on the subsequent rally, and a taxable investor potentially would have generated a large capital gains tax bill in the process.

Source: Bloomberg and JP Morgan Asset Management.

Getting a prediction this wrong might make you rethink your process, methodology, or career.  Or at least make you think about an apology tour.  But that is not how most market doomsdays operate.  An easy prediction is that during the next market selloff, the Armageddonists will be right back in the news to offer a view that their forecasts are coming true, and the worst is yet to come.  Hopefully, most people will be smart enough to tune them out.

We constantly remind our clients to maintain a long-term viewpoint as market declines are common.  Since 1928 the S&P 500 has generated a total annualized of return of about +9.6% despite averaging a decline of nearly -15% at some point each year (Source: Bloomberg as of 3/31/24).  As stock market investors, volatility is the price we pay for being able to compound returns over long periods.  Please see our Winthrop Wealth Principles for Long-Term Investing.

We typically offer the following advice in response to a dreadful market forecast:

• Be a little bit skeptical: an extreme market prediction like an upcoming crash or severe recession can often be designed to draw attention to the person making the forecast and/or their firm. The bold prediction is designed to sell you something and really boils down to, “the market might go down and the best thing you can do is buy my product.”  The person making the prediction often has an agenda and is looking to further their own self-interest.
• Be aware of moving goalposts: We often see the initial prediction but miss the follow up later that completely negates the original.  Predictions constantly change.  The investment phrase, “if you must forecast, forecast often” exists for a reason.
• Understand the person and the data: Anyone can make a bold market prediction.  Consider the qualifications of the person, the data behind the prediction, and their past track record before you act.

Rather than worrying about a dire market prediction, our advice is to focus on what you can control, namely your investment process and philosophy.    In our view, investors with a globally diversified portfolio and a long-term time horizon should remain optimistic.  Markets have historically increased over time despite frequent drawdowns as successful corporations have been able to figure out ways to generate profits through advances in innovation and productivity.  To capitalize on the power of compounding, we believe in the benefits of staying Disciplined, Opportunistic, and Diversified, while striving to Mitigate fees, taxes, and expenses.

• Disciplined: consistently applying our investment process and philosophy, which are grounded in a long-term approach.
• Opportunistic: rebalancing, repositioning, and tax-loss harvesting to take advantage of market volatility and dislocations.
• Diversified: seeking to ensure that portfolios are properly allocated across and among asset classes to enhance consistency.
• Mitigate: striving to avoid unnecessary disbursements, including fees, taxes, and expenses.

In our opinion, adhering to a structured process and executing on all these components should help keep our clients on track toward pursuing their long-term objectives.  Historically, equity markets have recovered from recessions and downturns.  Past performance is no guarantee of future returns.  There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. 

At Winthrop Wealth, we follow a Total Net Worth Approach to wealth management that combines both comprehensive financial planning and investment management. The financial plan helps define cash flow needs, seeks to optimize account structures, considers tax mitigation strategies, and determines the appropriate asset allocation based on the client’s willingness and ability to take risk. Based on the output of the financial plan, our investment management process designs a well-diversified portfolio constructed with a long-term methodology based on prudent risk management, asset allocation, and security selection. For clients who receive both financial planning and investment advisory services under agreement. No strategy assures success or protects against loss. Investing involves risk, including loss of principle. 

Armageddonist Forecast:

Source: JP Morgan Asset Management.