December 21, 2024
Investing, like politics and life, is deeply intertwined with human nature. By observing behavior patterns, we can better understand the forces driving financial markets and political ideologies. Biblical studies, particularly Ecclesiastes 3, offer timeless insights into the cyclical nature of human activity. These lessons can be applied to both political shifts and market trends, helping investors navigate periods of uncertainty and opportunity.
Ecclesiastes 3 begins with these words:
“There is a time for everything, and a season for every activity under the heavens: a time to be born and a time to die, a time to plant and a time to uproot, a time to kill and a time to heal, a time to tear down and a time to build.”
This wisdom from the Bible reflects the rhythms and cycles that define life. In politics and markets alike, there is a natural ebb and flow, periods of growth and decline, optimism and fear. By studying these cycles, investors can gain valuable perspective on the forces shaping the world around us.
Politics: A Pendulum of Fear and Confidence
Human nature drives political ideologies to swing like a pendulum. People sometimes feel fearful and uncertain, seeking strong, authoritative leaders who promise to protect and provide stability. This dynamic is evident today as conservatism gains ground globally. For instance, in the United States, Donald Trump’s victory over Kamala Harris in 2024 reflects a populace seeking reassurance amid turbulent times. Similarly, in Canada, Pierre Poilievre’s rise against Justin Trudeau signals a shift from liberal ideals toward conservative leadership.
Conversely, during periods of confidence and prosperity, people gravitate toward inspirational figures—charismatic speakers, community leaders, and visionaries—who embody hope and possibility. These shifts are cyclical, mirroring the natural law expressed in Ecclesiastes.
Financial Markets: The Cycle of Fear and Greed
Just as politics reflects human sentiment, financial markets are governed by the oscillation between fear and greed. Investors’ emotions drive price trends, creating risk-taking and risk-aversion cycles. When fear dominates, markets retreat; when optimism prevails, markets surge.
Economist John Maynard Keynes called this phenomenon “animal spirits,” describing the instinctive and emotional factors influencing market decision-making. Ecclesiastes reminds us there is “a time for everything” in the markets, including expansion and contraction phases. Bulls represent periods of rising prices, while bears signify declining trends. Cyclical tops, known as distribution, occur when investors sell off assets in anticipation of a downturn. Cyclical bottoms, or accumulation, happen when confidence returns, and buyers step in.
The Current Cycle: Turning Toward Fear
As we look ahead to 2025, the world finds itself in a time of fear and risk aversion. Political conservatism is rising, reflecting a larger loss of confidence worldwide. Similarly, financial markets are nearing a critical juncture. After years of optimism and inflated valuations, a shift toward caution is taking hold.
The equity markets have reached their peak. Valuations are stretched, and investors have become increasingly wary of the risks. This recent change in sentiment suggested to me an imminent market contraction. The natural cycles of fear and greed, as described in Ecclesiastes and observed in human behavior, pointed me to an approaching downturn.
On December 4, I wrote an article titled “The Imminent Threat of a Market Crash.“ DeepMind, an Artificial Intelligence Review, reviewed the article. On December 4, the Dow 30 Index closed at 45,014.04, a record-high close, and then suffered ten consecutive losses to close at 42,326.87. How prescient was that? That string of losses in the Dow 30 was the longest since 1974, a period of 50 years, which is longer than most investors have participated in markets, and many were born. But that was just a market correction. The next contraction in mid-January will be more severe.
Lessons for Investors
Investors should recognize that markets, like life, follow cycles. Fear and confidence drive decisions, shaping political and financial market trends. By staying disciplined and focusing on fundamentals during uncertain times, investors can find opportunities others would not see. Conversely, extra cautious investors can avoid costly mistakes when markets are over-enthusiastic.
Understanding market trends and cycle patterns is not about predicting the future but preparing for it. Just as Ecclesiastes teaches that there is a time for everything, investors can learn to adapt to the market’s cycles. Those who remain patient, observant, and thoughtful will be better positioned to manage trend reversals and seize opportunities when the time is right.