Towards the end of every calendar year, major investment banks and fund-management groups produce stock-market forecasts for the year ahead. Ignore them, says James Mackintosh in the FT.
Since 1999, Bloomberg has compiled strategists’ forecasts for the level of the S&P 500 at the end of the following calendar year. “The results are dismal – worse than economists’ predictions, which is saying something.”
Since 1999, we have seen the bursting of the dotcom bubble and the collapse of the credit bubble. Yet strategists as a group never predicted a down year. The average forecast at the start of 2008 was for a gain of 16%, even after the subprime crisis, the evident credit crunch and the run on Northern Rock.
After the S&P’s 2008 crash, humbled strategists called for only a tiny gain in 2009, yet it surged by 24%.
In sum, most analysts are too bullish, while in a single year, so many variables can affect stocks that their performance is a matter of chance. We can form a reasonable guess about the outlook over many years based on whether stocks are cheap or expensive when we buy, as MoneyWeek often points out.
But as for the year ahead, all we know is what JP Morgan used to say when asked for predictions: the market “will fluctuate”.