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What Are Predictions About the Future Worth??

What Are Predictions About the Future Worth??

January 16, 2024

Source: A-Z Quotes

The above quote is attributed to baseball legend and part-time philosopher Yogi Berra. One of the great things about Yogi was that he had a unique and often humorous way of stating the obvious. It would be much easier to make predictions about things that already happened. Although, even in hindsight, some people wouldn't believe what really happened in the world today.

We are at that time when economists and strategists are making their predictions about where things will go in the upcoming year. It is an annual rite of passage on Wall Street. When looking at past predictions, it would make you wonder why anybody would put their reputation at risk in this process.

Let's go back to the beginning of 2022. The stock market, as measured by the S&P 500 was at an all-time high and was approaching 4800. The economy was growing. There were still mountains of money flowing through the economy from COVID and post-COVID stimulus bills. Russia had not invaded Ukraine yet. However, the Federal Reserve Bank, after telling us for months that inflation was transitory, was threatening that they would have to begin raising rates to fight persistently rising prices.

Against this backdrop, we can see in the chart below that the many on Wall Street were expecting the S&P 500 to rise 9% to 5100. It is interesting to note that no strategists were predicting a negative year for the market in 2022.

Source: TradingView.com

We can also see that the consensus was plainly wrong. As the Fed raised interest rates much further and much faster than anyone expected, and as geopolitical threats injected uncertainty into the economy and energy prices, the market fell 26% before ending the year just above 3800, some 1300 points lower than what the experts predicted.

Fast forward to this time last year, the mood among the same Wall Street gurus was much more pessimistic…

Source: Investing.com

We can see that there were a few market strategists who were brave enough to predict a double-digit return for the S&P 500. However, the average consensus was that the market would end the year around 4000 with a gain of less than 5%. Let's see how our experts did when compared to where the index finished in 2023.

Source: BigCharts.com

Even the most optimistic strategists undershot the actual performance of the S&P 500, which finished up more than 23% on the year. Much of this gain was driven by a handful of technology and AI stocks.

It appears that Yogi was right. Predictions are tough to make…especially about the future. So, as you watch the news or read things online and people confidently state where they think things will be 12 months from now, please look at the charts above and remember their dubious track record of success before you put too much weight in what they predict.

Source: YouTube.com

As we close today's post, I will turn to another wise sage, Jeff Saut, former Raymond James Chief Investment Strategist, who served in that role for 20 years until he retired in 2019 at age 69. Jeff is still very active and visible on Wall Street. You have seen him on CNBC, where he is a regular guest. When asked about what his prediction for the market will be in the coming year he generally quips, “I think end-of-year price targets are a waste, given that most of “The Street’s” prices target guesses are wrong. That’s why when I am asked, I typically say, “I think stocks will be higher (or lower) by this time next year”.

And that, ladies and gentlemen, is REALLY what people know about where the market will be at this time next year. We thought we would shed some light and put this in historical perspective. We felt it was an important message in the new year as we continue “Moving Life Forward”.

© 2024 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.