Marketing budgets may be squeezed by global stock market volatility, experts say

On Monday, Wall Street experienced significant stock sell-offs, with the Dow Jones Industrial Average plummeting over 1,000 points and the S&P 500 dropping nearly 3%, marking its worst day since 2022. The technology-heavy Nasdaq opened 6.3% lower before recovering some losses, ultimately closing down more than 3.4%. Major companies were impacted, with Apple’s stock falling roughly 5% after Berkshire Hathaway announced it had halved its stake in the company. Nvidia's shares fell more than 6%, while Tesla's dropped over 4%.

The Chicago Board Options Exchange's Volatility Index, sometimes colloquially referred to as Wall Street’s ‘fear gauge,’ spiked to its highest level since the early days of the pandemic.

The upheaval was sparked Friday, as new data from the US Bureau of Labor Statistics revealed that only 114,000 jobs were added in July, falling short of expectations. Meanwhile, the unemployment rate climbed to its highest point in almost three years.

Ambient concern over interest rates added to the panic. Last week, the US Federal Reserve decided to keep its rates steady, a choice that some investors worry could impede economic growth. The Bank of England, meanwhile, dialed back interest rates last week. Other central banks, including the European Central Bank and Sweden’s Riksbank, have also cut rates this cycle.

The ripple effect from the tumble was felt worldwide. In Japan, the Nikkei 225 plunged by 12.4% on Monday, its worst drop since 1987. European markets also felt the pang, with the CAC-40 in Paris and the UK's FTSE 100 both slipping by around 2%.

After the chaotic sell-off, US stocks regained steam on Tuesday, but by the end of the trading day Wednesday had lost some of that positive momentum.

The volatility has sparked concern in the advertising and marketing sector. Highly reliant on economic stability and consumer confidence, the industry may be particularly vulnerable to major market fluctuations.

And this upheaval “doesn't come at a great time for a lot of CMOs,” says Ewan McIntyre, vice-president analyst and chief of research for Gartner for Marketers. “The situation was already pretty precarious.”

In fact, in 2024, CMOs’ budgets represent 7.7% of total company revenue, on average, down 16% from 2023, according to a recent study from Gartner that surveyed chief marketing officers across North America and Western Europe.

It’s a jarring realization against the backdrop of major global events like the Olympic Games in Paris and the upcoming US presidential election, both of which are expected to attract record levels of advertising spend. (And possibly publisher revenues, too; NBCUniversal, airing Olympics coverage this year, reported last week that it has delivered the highest Olympic and Paralympic advertising revenue in history).

Nonetheless, as it stands, just 24% of CMOs say they have sufficient funds to execute their strategies. This strain is exacerbated by the need to prioritize media and performance marketing spend, often at the expense of technology, labor, and agency investments. CMOs also widely report that they’re being pressured to do more with less – a demand that’s increasing due to the rise of AI-enabled tools.

Should the US economy head for a real downturn, brand marketing budgets will be shaken up even further. “During downturns, businesses often cut advertising budgets – and often reallocate the funds they do spend,” says Jeremy Goldman, senior director of marketing, commerce, and tech briefings at Emarketer

He predicts that such circumstances would reinforce marketers’ focus on media and performance marketing, the outcomes of which tend to be easier to measure. Additional focus might be placed on promotions and price breaks for thrifty audiences. He predicts that top-of-funnel brand efforts would be “greatly scrutinized” in many organizations.

Of course, brand marketers’ budgeting decisions – today and tomorrow – will have a ripple effect across the industry’s stakeholders. And brands’ agency partners may be among the first to feel the burn if instability in the market continues.

During the first half of the year, agency spend has remained fairly stable, “but as a proportion of the total marketing budget, it is down a little bit this year,” says McIntyre. “Even [though] 22% of the total marketing budget is going into agencies, it is a slice of a smaller pie.”

Larger agencies under holding company umbrellas may fare better amid shrinking budgets and market disruption, McIntyre suggests, because it may be harder for CMOs to cut these partners than “the second- and third-tier” agencies and partners. Ultimately, he says, “It comes down to these decisions that CMOs need to make around the agencies that they can afford to keep and that are central to their strategic success, [versus] those that they can't afford to have on the roster any longer. It’s not an even distribution of pain across agencies.”

In the face of an economic slowdown, Emarketer’s Goldman suggests that agency holding companies like Publicis, WPP, IPG, Havas, Dentsu and Omnicom should advise clients quickly, helping them adapt to changing conditions – while maintaining a focus on the long-term goals of their marketing strategies.

One industry insider, Frost Prioleau, the CEO and co-founder of adtech firm Simpli.fi, suggests that the agencies built to weather a potential economic storm will be those that invest significant resources in AI, so as to alleviate some of the costs associated with various marketing activities.

“The next downturn, whenever it comes,” he says, “will accelerate the adoption of automated, AI driven solutions across many advertising functions, including creative generation, media planning, optimized media buying, and campaign analysis. The agencies that execute best will be well positioned for the next recovery phase.”

This sentiment is shared by many brand-side marketers, with more than 75% of CMOs thinking that AI is positively influencing marketing, according to Gartner’s report. Many point to improvements in productivity and cost efficiency, but, overall, the technology’s impact on marketing expenses remains modest.

Ultimately, marketing budgets – already 2.8% lower post-Covid than in the four years before the pandemic – are expected to plateau or drop further in the coming months, according to Gartner’s McIntyre, especially if current market volatility is “more than a blip.”

It’s expected that inflation, high interest rates and diminishing returns on digital investments will strain budgets further in the coming months. “I don't think it's going to take a lot for that budget to be squeezed even further,” McIntyre says.

For marketers, he notes, it’s “a difficult situation … because we’re several years deep into a budget constraint, so it becomes even harder to work out [how] to deliver growth going into 2025.”

Despite the challenging environment, some analysts remain positive about the long-term prospects of the US economy and stock market.

One such optimist is Emarketer’s Goldman. “Economic growth reacceleration, AI-driven gains, potential interest rate cuts and a 25% recession probability,” he says, “suggest that a recession might be avoided.”

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