Bad news, says Lex in the Financial Times. “The bulls are back.” More than 70% of stocks in the S&P 500 have been given a consensus “buy” or “strong buy” rating. Only Campbell Soup has been deemed a “sell”. The trouble is that analysts usually get it wrong.
Just before the financial crisis, analysts were piling up buy recommendations, but once prices were actually at rock bottom, in March 2009, they “were screaming” sell. Since 2007, if you had gone against the Wall Street consensus, you would have “saved or made… a lot of money over the next six months”.
It’s not just shares – analysts are also lousy forecasters of year-end index levels. One study of S&P 500 predictions made by 22 strategists at major investment banks between 2000 and 2014 revealed that, on average, they were off by 14.6% a year. They didn’t foresee a single negative year, including the 2008 slump. As for macroeconomic forecasters, the International Monetary Fund, the European Commission and the US Federal Reserve all missed the global financial crisis. Analysts are prone to a herd mentality. They try to keep their predictions in line with the rest, because if everyone gets it wrong, nobody gets fired. They are also too bullish because predictions are part of their marketing efforts to drum up more investment. Take 2019 forecasts with a bucket of salt.