Ignore the seers; expect fluctuations

It's that time of year again when analysts try to predict the year ahead - often without much success.

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".

Recommended

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?
US Economy

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?

America’s central bank is talking surprisingly tough about tightening monetary policy. And it’s not the only one. John Stepek looks at what it all mea…
23 Sep 2021
The end of the bond bull market, and how to invest for it
Investment strategy

The end of the bond bull market, and how to invest for it

The great bond bull market looks to be over, and you probably don’t want to be holding government bonds, says Merryn Somerset Webb. Here’s what you sh…
21 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021