A Look At Market Forecasts for the New Year

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.

Performance Estimates for 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!

Consensus S&P 500 Estimates vs Actual Returns

 

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.

Figure 3 | S&P 500® Index Total Return and Headlines

 

As Much of 2023 that Fits on One page

Conclusion

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!

 

 

 

 

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