Ask paid stock forecasters what the market will do next, and the answers aren’t reassuring. Anything from plunge 12 per cent to jump 32 per cent, say S&P 500 strategists tracked by Bloomberg, among the widest ranges on record.
Getting calls right on things that influence prices is no easier. Consider a stock analyst trying to pinpoint earnings in 2023. Such an estimate requires a view on a multitude of major variables, including the impact of rising prices on sales, expenses and demand, as well as the effects of Federal Reserve rate hikes on the economy and its own future policy. It’s an exacta bet of intractable hopelessness.
If the wide range of outcomes foreseen by strategists helps with anything, it’s highlighting how little can be known with confidence in the market and economy right now. After uniformly failing to predict this year’s bear market, the process of rolling back optimistic predictions has been slow and messy -- befitting a market that while falling as much as 24 per cent has staged four separate bounces of 5 per cent or more.
“If the economy avoids a recession, then history suggests the bear is close to over,” said Ed Clissold, the chief U.S. strategist at Ned Davis Research who forecast the S&P 500 to end the year at 4,400, about 14 per cent higher than it is now. “If the economy falls into a recession, then there is significant downside risk in both time and price.”
Nor did the Fed have a clue what would happen, as evidenced by the onset of 75-basis-point rate hikes. After misjudging inflation as “transitory,” the central bank has been forced to hasten the pace of tightening. Policy makers may debate a historic one percentage-point rate hike later this month after another surprisingly hot inflation report for June.