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Given that we are a little past the year’s halfway mark, a recap of the first six months of 2023 will help put things in perspective. The good news is the first half was much better than the first half of 2022. A few highlights:
The EAFE Index gained ~13% during the first half of the year.
The S&P 500 rallied 16%, one of its better first halves since 1980.
The Nasdaq jumped 32%, its best first half since the tech-heavy index climbed 37% in 1983.
The U.S. Aggregate Bond Index increased in value by ~2.4%.
These are impressive returns for a full year, let alone six months! This is a step in the right direction since both stocks and bonds were down double digits for the year a mere 12 months ago. The irony is that we’ve endured a mini banking crisis and a less hawkish Federal Reserve, but markets continue to grind higher. That is something no one predicted.
Ah, yes, the good old prediction game. This brings me back to something that continually irks me. I still don’t understand how anyone thinks they can accurately predict anything anymore, especially in the short term.
Unfortunately, this inability doesn’t deter many from trying. To make matters worse, the media continues to give certain individuals a platform and labels such as market “experts” or “investing icons” when their track record says otherwise. I’ve written about this topic before and was diplomatic about it, but not this time.
I don’t want anyone to confuse this with me thinking I can do any better. I know I can’t. Early in my career, I realized timing the market or making bold predictions is a fool’s errand. There’s a reason I often joke with clients that their guess is as good as mine when asked how I think markets will perform in any given year.
The reality is no one knows, yet many “experts” continue to have a platform to inform us of what drastic action must be taken immediately to save our portfolio from what supposedly lies ahead.
Let’s take a step back for a second. Both stock and bond markets have endured record volatility over the past three years at levels never thought imaginable. Yet so many pundits continue to think they have a handle on it. I get it—these folks have a job to do, but at some point, it’s enough. If you consistently make inaccurate, outlandish predictions, accountability is warranted.
Let me be clear: Not all investment firms, money managers, and analysts fall into this box, but far too many do. To make matters worse, they are continually trotted out at investment conferences or put on TV to grace us with their “insight,” when in reality, they have no idea.
Markets are extremely complex mechanisms, and it’s absurd that anyone thinks they can continually stay ahead of them with any long-term accuracy. Only a handful of investors have been able to do this for any extended period of time.
What really drew my ire were a few quotes I read earlier this year from what many consider to be investing icons:
“My calculations of trendline value of the S&P 500, adjusted upwards for trendline growth and for expected inflation, is about 3200 by the end of 2023.” —Jeremy Grantham (January 2023).
“The economic headwinds are building, we’ve been talking about this for a while, and I think the recession is here in a few months.” “The Fed will cut interest rates a couple times this year, given the US economy is clearly weak.” “The best way to navigate financial markets under current conditions is by selling into equity rallies, especially when the S&P 500 reaches a range between 4,200 and 4,300.” —Jeffrey Gundlach (March 2023)
As of this writing, the S&P sits at 4,543. It would need to decline by ~30% for Mr. Grantham’s prediction to play out. He went on to say: “In a worst-case scenario, I see the S&P 500 falling as much as 50% to about 2,000.” That equates to a ~56% drop between now and year-end.
As for Mr. Gundlach, not only has his recession prediction not transpired, but the Federal Reserve has not cut rates and is likely to RAISE another quarter point. Currently, rate cuts aren’t expected until mid- to late 2024.
To be fair, I acknowledge that both gentlemen made a few accurate predictions in the early 2000s and 2010s, none bigger than somewhat accurately predicting the 2008 financial crisis. Fortunately for us, nearly every other prediction since has been wrong.
I have been keeping tabs on both for a while and continue to be amazed that so many people still listen to them. At this point, you’re likely wondering why I’m so critical of these two. I mean, after all, aren’t they allowed to be wrong? They are, but they have been consistently wrong for over a decade and continue to make fearmongering predictions every. single. year.
For example, Mr. Grantham continually warned that the S&P 500 was in a bubble from 2012 to 2015. During those four years, the S&P 500 returned +75.42% without a single down year! He doubled down on this in 2019 and 2020, and you guessed it—the S&P 500 returned +31.49% and +18.4%.
Not to be outdone, Mr. Gundlach said it “seems suicidal” to buy stocks in 2011 and advised people to “sell everything” in 2016. Since? The S&P 500 is up a mere 355% (start of 2011—chart below) and 159% (start of 2016). Even better? The index finished both years with positive returns.
It needs to be stated that both manage money for a living, so they are likely talking up their book. Now, they have every right to do so, but I wish the media would tell the whole story. While they are far smarter and more educated than I, continually predicting that 30%-plus crashes are “right around the corner” or calling for people to “sell everything” is terrible—and downright irresponsible, if you ask me.
Even Stanley Druckenmiller, widely considered one of the greatest investors of all time, acknowledges that short-term market timing is near impossible. This comes from a man whose fund, Duquesne Capital Management, never recorded a down year from 1981 to 2010. Even someone like him admits when he’s wrong and acknowledges that making bold predictions isn’t prudent, as markets have a way of humbling us.
While no blueprint for investing exists, sometimes less is more. The market has been extremely rewarding to long-term investors, yet that’s not good enough for many. Mr. Gundlach and Mr. Grantham want you to believe they can continually navigate in and out of markets when we know that the best approach is to own a diversified portfolio in which you rebalance and reassess your risk tolerance along the way. No one has ever gone broke following this strategy.
So I recommend you stick to what works and block out these so-called experts, as they are nothing more than cheap entertainment.
Discuss your situation with a fee-only financial advisor.