Wall Street Forecasts Won’t Tell You Where the Stock Market is Headed in 2024

Wall Street Forecasts Won’t Tell You Where the Stock Market is Headed in 2024

Wall Street strategists publish forecasts for how the stock market will perform in 2024.

Don’t pay them any attention.

Predictions are usually wrong, and when they are correct, it is only by accident.

Consider their prophecies for 2023. At the end of 2022, strategists predicted that the S&P 500 would end 2023 at 4,078, a 6.2% gain from where it started, according to Bloomberg data.

Currently, the market is above 4,700, a gain of more than 22 percent. Those predictions were arguably deeply flawed because 2022 was a truly terrible year for stocks – and also one that most analysts completely failed to predict. The forecasts for 2023 were therefore unusually modest, reflecting the gloom that reigned at the time they were drawn up.

The median forecast on Dec. 19 called for the S&P 500 to close 2024 at 4,750 points, according to Bloomberg. Projections are still evolving – and will undoubtedly increase if the market continues to grow. When the market rises, so do the forecasts.

These predictions are not scientific, and I only bother to mention them because they receive enormous media coverage and inform the advice given to thousands, if not millions, of people.

If you find them entertaining or otherwise enlightening, wonderful. Enjoy it.

But at all costs, don’t take them at face value, because there is no evidence that anyone can reliably predict market movements, and plenty of evidence shows that buying and selling stocks based on your opinion of impending market movements is a good thing. a fool’s game.

It’s better to invest with humility: accept that no one knows where the market is going at every moment and focus on the long term anyway.

For many decades, the entire global stock market has been on an upward trend, and as long as capitalism survives and companies continue to make profits, the stock market as a whole is likely to rise. But this certainly won’t be the case all the time. If you’ve been in the market, you know that it goes up and down. These movements are mostly unpredictable.

Yet Wall Street strategists still make predictions, despite an extraordinarily inept track record.

In 2020, using data compiled by Paul Hickey, founder of Bespoke Investment Group, I discovered that since 2000, Wall Street has often been wrong in the direction of the market. At my request, Mr. Hickey updated the data.

The numbers show that from 2000 to 2023, the median Wall Street analyst predicted the S&P 500 would rise 9% per year on average. In reality, the annual increase averaged 6 percent.

Even these figures underestimate the degree of failure.

In 2018, for example, the market fell 6.9 percent, while forecasters expected it to rise 7.5 percent, a difference of 14.4 percentage points. In 2002, forecasts called for an increase of 12.5 percent, but stocks fell by 23.3 percent, a gap of almost 36 percentage points.

And for 2022, forecasts are for an annual increase of 3.9 percent. But the stock market lost 19.4 percent. The forecasters were wrong by a margin of more than 23 percentage points.

Accounting for these gaps, Wall Street’s median forecast for 2000 to 2023 missed its target by an average of 13.8 percentage points per year, more than double the stock market’s current average annual performance.

Many Wall Street strategists are astute analysts of what has already happened. But the economy and markets are constantly changing, in unexpected ways. Reliably forecasting stock market averages 12 months in advance is beyond anyone’s reach.

Declining inflation combined with a robust job market has led many to believe that the Federal Reserve will soon cut short-term interest rates that it directly controls. This is considered bullish for the stock market, which has been rising over the past two months. The S&P 500 is on the verge of surpassing its last high, reached in January. And if there’s no recession next year and interest rates fall, it’s reasonable to think the market will continue to grow.

That, in a nutshell, is the bullish scenario. But it is also easy to imagine bearish alternatives.

For example, if the Fed cuts interest rates prematurely, inflation could occur. The central bank could then be required to raise interest rates again, as Paul A. Volcker, the former chairman of the Fed, had to do in 1981, thus triggering a second recession in two years.

A “soft landing” of the economy could occur in 2024. But so could a recession.

David Rosenberg, a veteran strategist and economist, always predicts one, as he has since early 2022. He expects the economy to slow, interest rates to fall, and stocks to fall. “Treasuries, not the stock market, will be the best-performing asset class in 2024,” he told me in an interview.

Given the complexity of the world and all the crises, large and small, that are already evident, it would take a very long column to sketch out all the things that could go wrong with a forecast for next year. And I’m sure there will be bigger changes than few people yet imagine.

Fortunately, you don’t need to know these things to succeed as an investor.

The key, first of all, is to have enough money saved to pay the bills, because investing comes with some risks and you don’t want to take chances with money you absolutely need. Then, to minimize your risk when owning stocks, decide to invest in the broad market for decades via low-cost diversified index funds and avoid any attempt at market timing. Wall Street predictions could tempt you to buy and sell at the wrong time. It is safer to ignore these predictions altogether.

Actions are only part of the program. I also invest in high quality bonds and do it the same way, with broad, low cost index funds. Investment grade bonds, and especially Treasuries, generally provide a buffer if stocks fail (although this has not been the case in 2022). Treasuries, in particular, are safe investments, despite fiscal stress resulting from the U.S. government’s failure in recent years to reach consensus on spending and tax policies.

I find these forecasting exercises fascinating and sometimes learn a lot from them, but I don’t expect them to provide a road map for the future.

Hope for the best, prepare for the worst, and move on with your life. Unfortunately, Wall Street’s forecasts won’t help any of this.

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David B.Otero

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