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EYE ON THE MARKET  MICHAEL CEMBALEST  J.P. MORGAN November 12, 2019 1 INVESTMENT PRODUCTS ARE: ● NOT FDIC INSURED ● NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES ● SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED Topic: The Armageddonists While recessions and bear markets are a fact of life, something peculiar happened after the Global Financial Crisis: the rise of the Armageddonists, which refers to the market-watchers, forecasters and money managers whose apocalyptic comments spread like wildfire in print and online financial news. I understand why: by 2010, investors had experienced two consecutive bear markets, each with equity declines of over 40%.  It took several years for equity markets to recover each time, unlike the shallower, faster-recovering bear markets of the 1960’s and 1980’s. The dismal performance of consecutive 2001/2008 bear markets hadn’t been seen in decades, and is only comparable to parts of the Great Depression. I also understand that mega-bearish news appeals to human negativity bias, a topic examined by Nobel Prize winner Daniel Kahneman in his 2011 book on the brain and human survival instincts 1 , by political scientist Stuart Soroka who has illustrated the inverse relationship between magazine sales and the positivity of a magazine’s cover 2 , and in a 2014 experiment in which a city newspaper lost two thirds of its readers on a day when it deliberately only published positive news. That said, what are the consequences for investors that reacted to dire Armageddonist predictions which have flooded the airwaves and internet since 2010? 1 “The brains of humans and other animals contain a mechanism that is designed to give priority to bad news . By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce”. Daniel Kahneman, in Thinking Fast and Slow , 2011. 2 In “ Negativity in Democratic Politics ” (Cambridge University Press, 2014), Stuart Soroka also explores the heightened physiological impact of negative news, including changes in heart rate and skin conductivity. Great Depression Suez Crisis/ Soviet invasion of Hungary JFK attacks US Steel & corporate sector Tight money & Credit crunch Beginning of Great Inflation from Vietnam War spending, Prime/Mortgage Rates hit 8.5% Stagflation (Misery Index hits 20%) Volcker kills inflation: 20.5% Prime Rate Program trading and portfolio insurance/risk arbitrage unwind US S&L crisis Tech collapse Balance sheet fraud Global financial crisis Fed tightening scare -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Source: Bloomberg, JPMAM. November 8, 2019. A history of S&P 500 bear markets Percentage decline in the S&P 500 from its prior peak 

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The Armageddonists.pdf

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