You know how we feel about investment forecasts around here.
We don’t take them too seriously.
And last year you shouldn’t have. The NY Times reported that Bloomberg showed the average forecast for 2023 was “the most bearish since 1999”.1 Yet the stock market had a fantastic year.
Let me say that again. Most Wall Street strategists saw a bad year for the markets. Most were proved to be wrong.
Mark it down.
Bob Seawright, over at his substack The Better Letter, kept receipts and uncovers several forecasting failures from last year:
Morgan Stanley’s Mike Wilson, picked by institutional investors as Wall Street’s best strategist, thought the bear market would continue, and the S&P 500 would fall hard before finishing 2023 at 3,900, pretty much where it began. At Bank of America, rate strategist Meghan Swiber was telling clients to prepare for a plunge in U.S. Treasury bond and note yields to forge a huge rally (she wasn’t alone). And, at Goldman Sachs (as at JPMorgan and elsewhere), strategist Kamakshya Trivedi was pitching Chinese assets because he thought the economy there would finally roar back from Covid lockdowns. Together, these three forecasts became, in essence, the consensus view.
They were wrong, wrong, and wrong.2
Nevertheless, we look at forecasts not only because it’s part of our job and dare-I-say fun, but because it helps assess market sentiment and investor mood.
What are stock market “experts” predicting for this coming year?
One of the few who got it right last year, despite pervasive negative sentiment about the stock market, was Fundstrat—and they remain positive for the year ahead, projecting a 9% increase.
According to the chart above compiled by Barchart sourcing CNBC Pro3, there is a 1,000 point spread in forecasts from several other firms. While Oppenheimer is the most bullish and has the S&P 500 rising to 5,200, JP Morgan Chase is bearish and sees it falling to 4,200. At the time of this writing on January 11, 2024, the S&P 500 is 4,785.
In short: even the best firms on Wall Street accessing similar information can’t agree on how the stock market will perform.
Who should an average investor believe and what should they do? All this data becomes practically inactionable and can leave one feeling stuck.
Consequently, this time of year is another reminder to acquaint yourself with financial writer Jason Zweig’s satirical forecasting definition:
FORECASTING, n. The attempt to predict the unknowable by measuring the irrelevant; a task that, in one way or another, employs most people on Wall Street.
Because the human mind hates admitting the truth that the world is largely random and unpredictable, forecasters will always be in demand, regardless of their futility. Wall Street follows what marketing professor J. Scott Armstrong has called the seer-sucker theory: “For every seer there is a sucker.”4
Make this the year you decide once and for all: are you an investor or a speculator? A gardener or a gambler?
Sometimes we do need to make changes in our investment portfolios, but oftentimes we need to make changes to our behavior.
Maybe a better “forecast” to make is spotting your likely future behavior beforehand. It will probably be more accurate (and easier!) than stock market predictions.
Here is a 2024 forecast of investors instead of investments that you should revisit throughout the year:
- You’ll probably feel uncertain about upcoming elections and the impact on your portfolio.
- You’ll undoubtedly experience worry and fear over alarming headlines.
- You might get excited about a new company or investment opportunity that comes across your social media feed or in conversation that seemingly everybody thinks will do well.
- You’ll likely be tempted to sell if the stock market continues going down.
- You’ll likely be tempted to buy if the stock market continues going up.
- You’ll probably worry about the next fill-in-the-blank crisis spreading into a greater fill-in-the-blank crisis.
- You might wonder why you didn’t buy more of the things that went up in your portfolio and wish you had never purchased the things that went down in your portfolio.
Here’s the point: you are more predictable than the stock market will be.
Make a financial investment plan and do your best to stick to it.
Because though the future is always uncertain, we investors tend to be predictable.
- Quoted by NY Times Bernhard Warner, “The Bull and Bear Case for 2023”, December 27, 2022. Accessed online: The Bull-and-Bear Case for 2023 (Published 2022)
- “The Better Letter”, January 11, 2024. Accessed online: https://betterletter.substack.com/p/forecasting-follies-2024
- https://twitter.com/Barchart/status/1736952005380206748 via @Barchart on X on December 18, 2023.
- Zweig, Jason. The Devil's Financial Dictionary (p. 91). PublicAffairs. Kindle Edition.