Stock Market Forecasts: More Than Just a Guess?

The only real purpose stock forecasts serve is to shed light on how forecasters themselves are feeling, which one might consider a proxy for investor sentiment at the institutional level. Traders work on the floor of the New York Stock Exchange on June 2, 2023.Every new year, investing’s greatest visionaries exercise their powers by predicting exactly where the stock market will be at the end of the year.

The annual procession of forecasts comes courtesy of some of the highest-paid strategists in the business from the major brokerages and investment banks. Of course, everyone knows the stock market is unpredictable. But the Wall Street brain trust must be capable of foreseeing something worthwhile in the year ahead. Right? Not really. Not only does the average market call tend to be comically out of bounds. But also consider the wide range of outcomes imagined at the outset of each calendar year. That, too, has proven to be next to useless. There are 15-plus strategist targets that get compiled each year from the likes of Goldman Sachs, Morgan Stanley and RBC Capital Markets. A year ago, the predictions from this group for how the S&P 500 index would perform in 2024 ranged from a loss of 12 per cent to a gain of 15 per cent. The index ended the year up by 23 per cent – much better than even the Street’s most bullish forecast. It was a similar story in 2023. The rosiest prediction going into the year called for an increase of 17 per cent in U.S. stock. The S&P 500 ended the year on a 24-per-cent gain. Granted, those were two extraordinary years. Not since the dot-com boom of the late 1990s has the U.S. stock market clocked such blockbuster years back-to-back.A couple of years ago, Vanguard Group looked at the reliability of market forecasts since the end of 2010. The analysis found that 75 per cent of the time one-year returns were either higher than the most optimistic forecast, or lower than the most pessimistic

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