A Look At Market Forecasts for the New Year
As 2023 draws to a close, market forecasting season has arrived. We are pleased the share the following insights and research about market forecasting from Avantis Investors.
Every year around this time, we begin to see “expert” forecasts on where the market will go next year. Many investors rely on these predictions to inform their portfolio positioning. The problem? No one is very good at consistently getting these forecasts right. We looked back at past estimates from industry strategists to offer some perspective.
First, there tends to be a wide range of projected outcomes across strategists. Figure 1 provides an example that plots 23 firms’ estimates of the S&P 500® Index level at the end of 2023. As you can see, the estimates varied widely and all 23 firms underpredicted the performance of the S&P 500 in 2023.
In Figure 2, we show median, or consensus, estimates from compiled industry strategist forecasts versus actual S&P 500 returns for 2023 and the preceding five years. The results fall short of inspiring awe. The estimation error ranged from 26% too low to 21% too high. On average, the median annual estimate was off by about 18 percentage points — nearly double the index’s long-term average annual return!
Predicting intentionally (i.e., due to overconfidence) or unintentionally (i.e., due to fear) what will happen the next day, week, month or year with the stock market steers us from looking at our investment journey as a whole. Remember, previously unexpected news and uncertainty will push markets up and down, as shown in Figures 3 & 4 for the last four years of the S&P 500 alongside notable headlines. Recognizing that this is a reality of investing but focusing on the big picture can help us avoid the temptation and pitfalls of trying to forecast markets.
At ShankerValleau, we do not try to make market calls based on short-term predictions. Just as the charts of headlines from 2020-2023 show, life is full of uncertainties and often impossible to predict. Our sound investment philosophy is meant to be implemented over a lifetime, alongside comprehensive financial planning.
While we do not know what 2024 will hold, rest assured ShankerValleau will be here for you through the ups and downs. Our best wishes for a happy new year and we look forward to serving you in 2024!
ShankerValleau DISCLOSURES ShankerValleau is not affiliated with Avantis Investors. This newsletter may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. Inclusion of index information is not intended to suggest that its performance is equivalent or similar to that of the historical investments whose returns are presented or that investment with our firm is an absolute alternative to investments in the index (if such investment were possible). Investors should be aware that the referenced benchmark funds may have a different composition, volatility, risk, investment philosophy, holding times, and/or other investment-related factors that may affect the benchmark funds’ ultimate performance results. Therefore, an investor’s individual results may vary significantly from the benchmark’s performance. Any information provided by Adviser regarding historical market performance is for illustrative and education purposes only. Clients or prospective clients should not assume that their performance will equal or exceed historical market results and/or averages. This newsletter is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice. Avantis Disclosures You should consider the fund’s investment objectives, risks, and charges and expenses carefully before you invest. The fund’s prospectus or summary prospectus, which can be obtained by visiting avantisinvestors.com or by calling 833-9AVANTIS, contains this and other information about the fund, and should be read carefully before investing. Investments are subject to market risk. If this material contains any yield in addition to the 30-day SEC yield, the material must be preceded or accompanied by a current or summary prospectus. Exchange Traded Funds (ETFs) are bought and sold through an exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results. This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation. Portfolio holdings are as of date indicated and subject to change. It is not possible to invest directly in an index. The opinions expressed are those of the portfolio team and are no guarantee of the future performance of any Avantis fund. References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice