While we were out chopping down and decorating our family’s Christmas tree, financial analysts around the globe were busy preparing their firm’s forecasts for the coming year. Just in case you missed it, RBC believes “the S&P 500 will hit record highs” in 2024. At the same time, Wells Fargo and others have completely contradicting opinions. In fact, Wells predicted a “really, really sloppy’ first half for stocks,” and went on to say that “It’s really hard to get excited?”1 So, who is right, and who is wrong? Better yet, should you even waste a moment of your time listening to the “expert” forecasts this holiday season? Well, I will let you be the judge of that.
History of Market Forecasts History demonstrates that forecasts are seldom accurate. The experts predicted that 2022 would be a positive year for the stock market, but instead we experienced an extraordinarily difficult year for both stocks and bonds! Then, in 2023, the consensus among analysts correctly expected interest rates to rise, but they incorrectly estimated the result by predicting a global recession would occur this year.2 In reality, the S&P 500 is up over 20% year-to-date which has allowed the patient investor’s portfolios to recover from the bear market of 2022.
I believe only half of the problem is the ignorance of the experts, the rest of the problem comes down to the way we are wired as human beings. When we see forecasts, we often read only the headlines, and seldom take the time to make it to the disclosures (i.e. the “fine print”) at the bottom of the page. As a case study for this, one of my clients shared with me the following advertisement that came across their Facebook feed this past summer:
This one makes me belly laugh! If you insist on taking the time to read the headlines, then I strongly recommend that you also take the time to read the disclosures as well. In my experience the fine print is often more reliable than the headline. Here is what the fine print said on the creepy prediction above:
Chaikin Analytics tells us flat out that their alerts and signals (i.e. predictions), “should not be relied upon for investment decision.” So, what are they good for????
Responding to Forecasts
Famed investment guru Howard Marks has his own opinion about forecasts. He said, “There’s really no such thing as analyzing the future because the future is unknown.”4
So what do we do in the face of forecasts?
- We must remember that financial forecasts are often inaccurate.
- This is because the future, by nature, is unpredictable.
- Ignore forecasts and focus your energy on remaining disciplined to your investment plan.
I understand this advice is easier said than done. But that is why you have me! I will help you know what can be ignored and those things we should pay attention to.
- NBCDFW, CNBC affiliate, Nov 27, 2023
- Bloomberg, Oct 28, 2022
- https://www.chaikinanalytics.com/. Disclosure part of sponsored ad on Facebook.
- Oaktree Capital Management Letter, June 2022.
© The Behavioral Finance Network
