Financial markets have always been fertile ground for predictions — especially predictions of disaster. Every bull market breeds a chorus of skeptics warning that the end is near, and every market wobble seems to invite proclamations that a crash is imminent. Yet history repeatedly shows that even the smartest, most credentialed commentators frequently get it wrong. Trying to time the next major downturn isn’t only extraordinarily difficult — it can be financially harmful.
Market crashes are dramatic events. The 1987 crash, the dot-com bust, the global financial crisis of 2007-09 and the sudden COVID-19 crash in 2020 all sit vividly in our collective memory. Catastrophic declines are easier to imagine than slow, steady growth — and fear makes predictions feel urgent and credible. But the market doesn’t move in straight lines, and crashes don’t follow simple patterns. Predictions often sound persuasive, and they often feel correct, especially when markets are expensive or volatile — or geopolitical risks run high. But feeling correct isn’t the same as being correct.
Since 2010, there have been many market moments that were widely expected to trigger a collapse but ultimately didn’t. In 2013, when the Federal Reserve hinted at slowing bond purchases, some forecasters warned of a crash. Instead, the S&P 500 gained more than 30% that year. Then in 2016, many major banks publicly forecasted an immediate U.K. recession due to BREXIT and a global market drop if the vote passed. Stocks fell briefly but then rebounded quickly, with U.S. markets ending the year strongly positive. We all remember vividly what happened during COVID-19, when several prominent fund managers warned markets would retest lows or collapse again after the spring 2020 rebound. Instead, markets surged to new highs in 2021. In all these cases, reasonable-sounding predictions of crashes weren’t just slightly off — they were completely wrong.
Even highly respected economists and investors misjudge markets. Famous for predicting the 2008 crisis, Nouriel Roubini subsequently made numerous bearish forecasts — many of which never materialized. His continued calls for recessions and crashes throughout the 2010s didn’t match actual market performance. Robert Shiller, a Nobel laureate known for the Shiller CAPE ratio, has repeatedly warned that valuations were dangerously high (especially in 2013, 2016 and 2018). Markets nonetheless delivered strong multi-year returns after each warning.
Why timing the market is fundamentally difficult
Predicting a crash isn’t one problem — it’s actually two. You must predict the downside correctly and know when to sell. This requires knowing the exact moment to exit, without acting too early (despite countless false alarms). But the danger is that selling early means missing gains — often massive gains — that occur before downturns. On the other side, you must also predict the recovery, which is even harder. Most of the market’s long-term gains come from a small handful of big recovery days. For example, after the COVID-19 crash, investors who waited for “certainty” missed enormous rebounds. Unfortunately, the market never gives an all-clear signal. Often recovery starts to occur while unemployment is still rising, news is bleak, GDP is shrinking and pessimism is high. In other words, the best time to buy usually feels like the worst time to buy.
The real danger: opportunity cost
The primary danger of trying to predict crashes isn’t just the risk of selling at the wrong time. It’s the much larger risk of sitting on the sidelines while the market moves upward.
Over the last century, the U.S. stock market has risen roughly 75% of all years, despite multiple recessions, wars, political crises and global shocks. The long-term upward drift of equity markets means being out of the market usually harms investors far more than staying invested through volatility.
Market crashes do happen. They’re inevitable — but their timing isn’t. History shows that crashes often arise from unexpected causes and many “obvious” crash catalysts turn out to be irrelevant. Experts routinely get both downturns and recoveries wrong, and missing market recoveries is often more damaging than riding through declines.
The danger isn’t that people predict crashes. The danger is that people act on those predictions.
A sound long-term strategy — diversification, disciplined allocation and consistency — has beaten prediction-based approaches for more than a century. The future will likely be no different.
Zach Harney is a wealth manager at Creative Planning. He welcomes questions you may have concerning investments, taxes, retirement or estate planning. Send your questions to: Zach Harney, 2340 Garden Road, Suite 202, Monterey, CA, 93940. Or you can email zach.harney@creativeplanning.com. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
