In Down Markets, Bullish Investors Need to Keep the Faith

Amidst Waves of Smart-Sounding Terminology, Keep Swimming

“When financial talking heads spew out a word salad of unusual terms, it makes them sound almost undoubtable,” admits Sheaff Brock Managing Director Dave Gilreath. Next to market mavens using terms such as “quantitative tightening,” “yield-curve inversion,” “reversion-to-the-mean,” “earnings drought,” and “Fibonacci lines,” with the negativity backed up with oceans of data, it can be hard to keep the faith. But faith, Gilreath explains, is precisely what bullish investment folks rely on—faith in corporate resilience, human ingenuity, and the awesome power of capitalism.

In a bull market, the conditions of the economy are generally favorable, while a bear market exists in an economy that is receding. But, as Investopedia points out, the financial markets are greatly influenced by investors’ attitudes. In a market where share prices are dropping, investors’ belief that the trend will continue perpetuates the downward spiral. In other words, investor psychology and sentiment affect whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent.

Of course, looking back over the past two decades, some of the negative predictions of the past have come true.

In the spring and summer of 2002, there were dramatic declines in stock prices, reaching a final low in mid-March of 2003.
2007 and 2008 were years of financial crisis with many failing banks.
In 2010, the Dow Jones Industrial Average suffered a nearly 1,000-point drop.
In the summer of 2015, there was a plunge in stocks and in commodities.
2018 marked a cryptocurrency crash with a concurrent drop in stock values.
2020 brought COVID and a stock market decline with it.
2022 thus far has seen the Ukraine war, inflation and the resultant decision to raise interest rates, as well as political unrest.

Throughout both these decades, the big words continued. The smart-sounding terminology—“moving average,” “backwardation,” “demand-push,” “balance sheet reduction”—the gloom-and-doom, the nonstop “end is nigh” predictions. It’s interesting, Sheaff Brock’s Gilreath observes, to contrast author Harry Dent and giant asset manager Jeremy Granthan with Warren Buffet. The first two smart-sounding dudes specialize in predicting negative stock market performance (Harry Dent is known for warning about “the crash of a lifetime” while Jeremy Granthan repeatedly warns about market bubbles, recessions, and depressions).

Their predictions (as of this writing the Dow is a little over 29,300):

In 2016: “Dow 5,000”
In 2017: “Zero Hour” (major crash anticipated)
In March 2021: biggest crash ever by June

In contrast, Warren Buffet (the third smart dude, who eschews complex financial jargon and maintains faith in the long-term power of the stock market) believes that market downturns are the best time to look for good companies that are undervalued. In other words, amidst the waves of smart-sounding terminology, the smartest thing to do is to keep the faith and keep on swimming!