Will Markets Speed Up For Investors Now That So Many Have Taken the Off Ramp?

Goldman Sachs believes the chances of a recession in 2025 should be increased from 10% to 20%, and Americans have been searching for “recession” on Google at near-record levels. Investors have been heading for the exits, which means opportunities are likely to emerge.

Chart of the Week

This headline, “Gold Loses Status as Haven,” is a good example of why many investors make poor decisions. The Wall Street Journal is a respectable media outlet—one of the best. Yet even its writers have no idea what the future holds. Gold is one of the hottest investments of 2024/2025. The last 20 years have also been good. It may surprise fans that even as gold reaches all-time highs, it has underperformed the S&P 500 over the last 5, 10, and 20 years. It also has the same amount of volatility, which most people are unaware of. As a professional, I see it as another tool.

The yellow metal is at all-time highs, and my indicators for it over the short run have changed, as did other signals in my system. Last Thursday, I sold significant portions of gold positions (and my defensive holdings in utility stocks). I took the proceeds and reinvested them in technology stocks. I am not wildly optimistic about this trade. I believe the economy is slowing down. I am just following the signals. The signals are why I bought gold on May 23, 2024, and November 14, 2024. The signals are also why I purchased a large amount in utility stocks on February 9, 2024.

The beautiful thing about creating rules is that they can be tested. Probabilities can be calculated, and expectations set. This is where we find ourselves in March 2025: navigating the stock market has become more difficult. By the time this commentary gets published, the moment to “buy the dip” may have passed. Gold continues to look too hot, and bonds still have positive momentum.

Market Update

Goldman Sachs believes the chances of a recession in 2025 should be increased from 10% to 20%. That number is crazy. It should be much higher. It’s not just me. According to Google Trends, Americans are increasingly worried about a recession. The week had not even ended on Friday, and the term recession had been searched for at one of the highest rates of the last ten years. As an investor, what can we do? Stick with your plan. Each spike in “recession” worries found on this graph represented an opportunity to buy low in the stock market. These contrarian indicators work today just like they did 100 years ago. With all our knowledge and sophisticated technology, we are still human.

A recession is not guaranteed. I would give it a 50% chance—more than double Goldman Sachs, but far from certainty. If a recession comes, how bad would things get? The average drop for the S&P 500 might be around 25%. That is a lot, but we should not invest if we cannot handle a drop. A conservatively managed portfolio should lose very little.

Even market losses do not come all at once. The ups and downs seem unpredictable. Think of 2018, 2020, and 2022—all experienced losses of a similar magnitude to those of an average recession. Markets came back from all three. Markets have even recovered from more severe years, such as 2002 and 2008. Have a plan you can stick with, and then stick with your plan.