Barron's Streetwise: "How Low Can We Go?"
Date: April 11, 2025
Host: Jack Howe
Guests:
- Fran Keniry, Head of Investment at Vanguard's Advisory Research Center
- Jomana Selehin, Head of Investment Strategy Group Europe, Vanguard
- David Steinbach, Global Chief Investment Officer, Heinz (real estate)
Episode Overview
In this episode, Jack Howe examines whether Wall Street's worst-case scenarios for the stock market are adequately pessimistic. He dives deep into price targets, correction territory, the relevance of the classic 60:40 portfolio, and the far-reaching impact of recent tariff developments. Insights from Vanguard and Heinz leaders frame a discussion on market volatility, investor psychology, and the transition from a globalized to a more frictional economic environment.
Key Discussion Points & Insights
1. Wall Street Price Targets and Their Usefulness
Speaker: Jack Howe
- Theme: Jack critiques the growing trend of Wall Street firms offering three price targets for the S&P 500 index—bull, bear, and base cases.
- He likens this to "choose your own adventure" books (03:12) where most paths seem dire:
"Your chances of a bad ending are about 10 times higher than your chances of a good ending."
- Jack finds these targets less helpful than intended:
"They're supposed to help you make decisions, but it feels like they're just passing the buck to investors."
- Example: JP Morgan's recent base case for the S&P 500 is 5200 (current level), bear case 4000 (-23%), bull case 5800.
- He questions if a 23% drop (to 4000) is truly bearish considering historical norms and recent economic shocks (tariff threats, COVID).
2. What Is a Realistic Bear Case?
- Jack suggests that analysts may downplay genuine downside:
"If you want to lay out a bear case... earnings could decline 10%. Maybe investors only want to pay the average of what they used to pay, 14.5 times earnings. Do that math, you get to barely over 3,000 on the S&P—down 47%." (09:11)
- He stresses this isn't a prediction, but that worst-case scenarios may lack historical context and understate true risk.
3. Market Corrections, Recency Bias, and Staying the Course
Speaker: Fran Keniry (Vanguard)
- Markets are in "correction territory" about 30% of the time (11:29), defined as down 10% or more.
"The reason why there's an equity risk premium ... is because of this volatility."
- He charts recent history: COVID (-40% market drop), 2008-09 (-50%+), tech bubble (-40%+).
"If you have that kind of diversification, investors should be able to withstand those type of pullbacks... portfolios have tended to almost always have a positive, real return for those who stayed the course." (12:04)
- Insight: Staying the course, despite scary narratives, remains key to long-term success.
"It always seems like it's different this time... I would just caution investors that the story and the narrative always follows the downturn. Staying the course is not easy, but it is rewarding..." (12:57)
4. The Changing Relevance of the 60:40 Portfolio
Speaker: Jomana Selehin (Vanguard)
- The meaning and application of the "60:40" portfolio—a stalwart in investing—deserves re-evaluation.
"What is 60:40? It actually means different things to different people. For some, it's just a shorthand for a broad index portfolio." (13:49)
- She emphasizes personalizing portfolios, not adhering strictly to historical allocations.
5. Tariff Pause, De-globalization, and Investment Strategy
Speaker: David Steinbach (Heinz)
- Context: The recent 90-day pause of new US tariffs triggered relief but did not erase market volatility.
"This is just what deglobalization feels like... the friction cost of trade is going to be higher the next few years, maybe even 10 years, versus the last 50." (15:02)
- Even with negotiations, higher trade frictions will remain baked into business decisions—companies are rethinking supply chains (e.g., "China plus one" is now "US plus one").
- Metaphor for Markets: The investing environment is shifting from "downhill skiing" (tailwinds, fast returns) to "cross-country skiing" (slow, effortful progress).
"The last 40 years I would describe as downhill skiing... Now, the sport is shifting from downhill skiing to cross-country skiing." (18:53)
- Income growth and "alpha" (active outperformance), not just "beta" (broad market exposure), become more crucial.
- Outlook:
"Next decade, my view is that we will have an era of a bit higher inflation than we're used to... maybe higher rates, that is a possible outcome here based on higher friction costs in the system." (20:10)
6. Recency Bias & Lessons from History
- Both Jack and David warn that today's investors may be overly reliant on patterns from the past two decades—buy the dip, policymakers always rescue markets.
- Jack: "Somebody always comes to the rescue, no matter how bad... the market always bounces right back. You're saying it doesn't always work that way?" (22:04)
- David: "Exactly. Doesn't always work that way. Our debt levels have continued to pile on... a lot of the monetary policy in 08 became a tailwind and this time it's a headwind."
- The episode closes by urging investors to question assumptions and prepare for regimes different from their past experience.
Notable Quotes & Memorable Moments
On Wall Street Projections and Risks
- Jack Howe: “I'm not sure that when Wall Street puts out its worst-case scenarios, that those worst-case scenarios are gloomy enough.” (08:51)
- Jack Howe: “Maybe things have been high for so long that we forget what normal looks like.” (08:38)
On Market Corrections and Staying Invested
- Fran Keniry: “30% of the time the market trades in correction territory, which is down 10%.” (11:29)
- Fran Keniry: “Staying the course is not easy, but it is rewarding for those new investors who've been able to do that.” (13:24)
On Tariffs and the Changing Global Order
- David Steinbach: “This is part of a broader meta narrative that's been playing out for several years now of deglobalization. And this is just what deglobalization feels like ... the friction cost of trade is going to be higher...” (15:02)
- David Steinbach: “It's hard to put the toothpaste back in once it's all squeezed out. Even if we have forms of negotiated agreements... there will be elevated friction costs in the system.” (15:31)
Investing in a New Era
- David Steinbach: “Now, the sport is shifting from downhill skiing to cross-country skiing... that's a game that can be won, but it's just a different game.” (19:22)
- David Steinbach: “The scarce resource is alpha ... that's going to be more about income growth, more about how you're working assets.” (20:00)
- David Steinbach: “You really need to question things in a new way and check yourself. Is this just recency bias playing? Is this my '08 playbook I'm trying to get out?” (21:38)
Important Timestamps
- 00:24 – Market corrections: “30% of the time the market trades in correction territory” (Fran Keniry)
- 03:12 – "Choose your own adventure" analogy and Wall Street targets (Jack Howe)
- 09:11 – Calculating the real bear case: potential for a 47% decline (Jack Howe)
- 11:29 – Historical pullbacks and the case for diversification (Fran Keniry)
- 12:57 – The power and challenge of “staying the course” (Fran Keniry)
- 13:49 – The meaning of 60:40 and its evolving relevance (Jomana Selehin)
- 15:02 – De-globalization and lasting trade frictions (David Steinbach)
- 18:53 – From “downhill” to “cross-country skiing”—a new era for investors (David Steinbach)
- 20:10 – Higher inflation and regime change (David Steinbach)
- 21:38 – Recency bias and the need for new thinking
Conclusion & Takeaways
- Beware of Recency Bias: Investors and strategists too often expect the future to look like the recent past—quick rebounds, easy bailouts—but macro conditions and market structures are changing.
- Corrections and Bear Markets Are Normal: Staying diversified and remaining disciplined, while challenging, historically rewards patient investors.
- The 60:40 Portfolio Is Not Sacred: It’s a guideline, not gospel—personalization and flexibility are increasingly important.
- A Harder Road Ahead: The “easy” era of globalization and monetary tailwinds has given way to a period requiring more work, skill, and caution. Alpha (active returns) and income strategies may matter more as investment environments get tougher.
- Stay Thoughtful and Skeptical: Don’t accept optimistic (or even “bearish”) projections at face value—do your own math, know your risks, and be ready for more volatility and unpredictability.
This episode is a timely reality check for investors lulled by years of market gains, reminding us that financial history cycles, clouds gather quickly, and true risk is never as tidy—or as short-lived—as we’d like to believe.