Don’t trust the market seers

Every December, stockmarket analysts and economists produce their forecasts for the year ahead. Pay no attention.

Andrew Van Sickle
By
published
in News

Every December, stockmarket analysts and economists produce their forecasts for the year ahead. Pay no attention. "Professional market forecasters are often called dart-throwing chimps," says Morgan Housel of MotleyFool.com. "This might be an insult to chimps."

Housel examined the average S&P 500 year-end forecast made by the 22 chief market strategists of the biggest banks between 2000 and 2014. The forecasts were wrong by a jaw-dropping averageof 14.6 percentage points a year.

In that entire time, the average forecasts didn't foresee a single negative year, even though the span included a 78% crash in the Nasdaq and a 57% market slide in 2008/2009. The strategists not only totally missed bear markets, but also tended to underestimate bull runs in good years. "Who pays these people?"

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

And lest you think macroeconomists are any better, says Economist.com's Buttonwood blog, the European Commission, the International Monetary Fund (IMF) and the governors of the US Federal Reserve all failed to foresee the 2008/2009 crisis. The IMF, for example, in October 2007 said it anticipated GDP growth of 2.5% in the eurozone in 2008 and 1.9% for America. Similarly, analysts missed the 2014 oil-price slide.

Analysts play it safe. They base their forecasts on the recent past and cluster together: if everybody else gets it wrong too, you won't be sacked. They also tend to be optimistic because forecasting is largely about marketing, and beingtoo bearish would repel investors. The upshot? While valuations are a good guide to long-term movements, basing decisions on analysts' short-term forecasts is pointless. All we know for sure about the stockmarket over one year, as JP Morgan joked, is that "it will fluctuate".

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

Latest