Outlooks Everywhere
Death, taxes, and year-end market forecasts.
Like clockwork, the end of each calendar year brings an onslaught of projections for the year to come from market strategists, experts, and gurus. Without reading these forecasts, I feel confident making just a single prediction:
Most will call for decent returns next year.
Why? They (almost) always do. My forecast is about as risky as predicting an eastern sunrise tomorrow morning.
And for good reason. Since 1929, the average calendar year return for the S&P 500 is about 7½%, and that’s before considering dividends. The stock market has been positive two out of three calendar years during that time. Only twice has the S&P 500 been down in consecutive years since the 1950s, in 1973/1974 and in 2000/2001/2002. The odds favor the optimists.
I’m going to cherry pick a little and highlight 2022. Stocks and bonds have had a challenging year. The S&P 500 is down 18%. The investment grade bond market is down about 11%, too.
Did strategists predict this year’s bear market?
Not quite. A quick Google search for 2022 stock market forecasts returned this article from December last year. According to a Reuters poll, the median forecast from Wall Street strategists called for a 7.5% gain this year.
If it seems like I’m poking fun at the market strategists, trust me when I say I’m not.
I believe most market strategists at these firms are intelligent, talented, well-resourced, well-trained, well-informed, well-connected, experienced, hard-working, and well-intentioned. So why do their predications fail to materialize?
Forecasting is hard.
And when it comes to forecasting stock returns over a 12-month period, I believe they (and anyone else willing to try) will consistently be wrong more than they’re right.
At the beginning of the year, the Fed expected inflation to be transitory. We did not expect Russia to invade Ukraine. These two events would have been tough if not impossible to accurately predict. And they had a major influence on short-term stock prices.
It should make us wonder what will happen next year that we couldn’t possible see coming with current information. Or during the next five years?
We like to say long-term goals deserve long-term investment portfolios, and vice versa.
Regardless of what unexpected events unfold over the course of next year, we would encourage investors to return to the basics. Understand what you own and why. Avoid chasing fads. Take an appropriate amount of risk. And don’t be overly excited or spooked based on any singular stock market forecast.
I’ll wrap with two of my favorite forecasting quotes:
“Forecasts tell you a great deal about the forecaster; they tell you nothing about the future.”
“It’s tough to make predictions, especially about the future.”
Interested? Please feel free to reach out to me at eric@divviwealth.com or set up time with the Divvi team to see how we can help.
Opinions expressed herein are solely those of Divvi Wealth Management and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
Note: The investment grade bond index is represented by the Bloomberg US Aggregate Bond Index.
