Chris’ note: The S&P 500 is up about 13% from its low last October. That’s led a lot of folks to hope the bear market that began last January is over.

But today’s guest, Mason Sexton, says this is a false – and dangerous – narrative. He’s a top market timer who counts some of the world’s top hedge funds as clients. And over his more than four decades in the markets, he’s made some eerily accurate calls.

This includes a call in August 1987 that the stock market would fall at least 20% two months later. And that’s exactly what happened on Monday, October 19 – what we now call the “Black Monday” crash.

On October 2, just two weeks before the crash, Mason told his subscribers to “sell all stocks.” Those who heeded his warning were spared the worst of the Black Monday crisis.

As you’ll see from the Q&A with him below, he’s predicting the bulls will be dealt a crushing blow… and it all begins tomorrow.


Chris Lowe: You’re predicting a severe “down wave” that will cut stocks in half. And you say we’re on the cusp of that move right now. We’ll get to that in a moment. First, for folks who don’t know you, how did you become a market timer?

Mason Sexton: I graduated from Harvard Business School in 1972. And I got a job at Morgan Stanley soon after. Then, after a stint at Salomon Brothers, I wound up at the leading institutional research firm on Wall Street, Mitchell Hutchins.

I was there for five years. And it exposed me to how Wall Street hypes certain stocks… even when their research doesn’t back the hype.

I felt there had to be a better way. So, I enrolled at the New York Institute of Finance. And I trained with one of Wall Street’s most respected technical analysts, Ralph Acampora. That led me to start studying legendary trader W.D. Gann.

Chris: Gann is well known in trading circles. But for folks who are new to trading, who was he? And what drew you to him?

Mason: Gann was an amazing figure. He was a trader in the early 1900s. He wrote five books on technical analysis and trading. And he published a daily trading newsletter, The Supply and Demand Letter.

He believed that history often repeated and that financial markets move in mathematical cycles. He was also the first technical analyst to incorporate geometry and astrology into his work.

Chris: That sounds pretty far from the mainstream.

Mason: It does. But Gann had an unmatched track record. He became famous by way of an article in the December 1909 edition of Ticker and Investment Digest magazine.

One of its reporters followed Gann on the floor of the New York Stock Exchange to track his trades. Over the course of a month, he made 286 trades. And the reporter verified that 240 were profitable.

Gann ended the month up 1,000% on his original margin. And it brought him a lot of fame.

That intrigued me. So, I studied Gann’s methodology along with other cyclical trading strategies. And in 1984, I started a market timing service, Harmonic Research.

Word got around that I was coming out with some unusual, yet accurate, market predictions. And that led to a lot of publicity.

This included publicity over a call I made on August 25, 1987. I predicted the Dow would go down a minimum of 20% in October. And on Monday, October 19 – a day now known as “Black Monday” – the Dow plunged about 23%. 

It’s the steepest plunge, in percentage terms, in the Dow’s history to this day. So, that turbocharged my service.

These days, some of the world’s biggest hedge funds subscribe to my research. And two of them were among the top three performers in 2022. My recommended trades gave them the opportunity for a roughly 37% gain on trading the big S&P 500 ETF [exchange-traded fund] last year.

Chris: The S&P 500 is up about 13% from the low it made last October. That’s given a lot of folks hope that the bear market is nearly over. But you’re predicting something very different. What do you see coming?

Mason: I see a crushing decline in stocks starting as soon as tomorrow, March 7. This will be in full swing by March 17. And it will come with a recognition among investors that the Fed, in its commitment to tamp down inflation, will overcorrect and raise rates higher than previously expected.

Stocks won’t go down in a straight line. There will be plenty of volatility along the way. This will include rip-your-face-off rallies. But my research shows we’ll continue to trend lower until we hit an extreme of undervaluation in 2025 or 2026.

This down wave will take the S&P 500 about 40% to 60% lower over that time.

Chris: That would be the biggest fall for stocks since the Great Depression.

Mason: That’s right. And remember, the Great Depression came after one of the biggest booms in history – the Roaring Twenties.

We’ve just seen a similar boom I call the “Everything Bubble.” This left stock valuations at levels unlikely to be surpassed for generations… if ever.

Take the so-called Buffett indicator. It measures the value of the stock market versus GDP. And it set an all-time high above 200% during the Everything Bubble. That’s even higher than the dot-com bubble peak of 159%.

And in February 2021, the price-to-sales ratio of the S&P 500 hit an all-time high of 2.95. That compares with the dot-com peak of 2.45.

I could go on. But you get the picture. After the dot-com bubble burst, the tech-laden Nasdaq plunged as much as 83% over 2.5 years.

Chris: What can folks do to protect against the fall you see coming?

Mason: If you can keep your nest egg safe through the next three years, you’ll be doing a great job. If you can add a return of 5% to 10%, you’ll be doing an amazing job.

So, start out with 20% to 25% of your portfolio in cash or cash-like investments. You can earn about 4.2% a year owning the 5-year Treasury bill. That’s a good deal.

I also recommend crash-proofing your portfolio with gold and silver. They should make up another roughly 15% to 20%.

You can even own shares in an ETF that goes up when the S&P 500 goes down. For instance, the ProShares Short S&P 500 ETF (SH) will go up 1% for every 1% the S&P 500 goes down. You’re looking at a 40% to 60% profit if I’m right about what’s coming.

And of course, you can trade the volatility the bear market kicks up. As I mentioned above, my market timing calls last year gave my clients the chance to make a gain of nearly 40% on short-term market moves.

Chris: Thanks, Mason. I hope your prediction doesn’t come true. Because it’s a scary prospect. But you’ve a history of accurate market calls like this. And those are some great ideas for folks who are worried about another leg lower in this bear market.

Mason: Thanks, Chris. It was a pleasure.