Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme 

If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.  Our cousins in the UK would call this rubbish.  I would not be as kind.

Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.  Indeed, most of these folks are looking for double-digit gains.  Only two expect stocks to weaken.

In the last 30 years, the market has risen by more than 20% only 15 times.  The exceptional span during that time was 1996-1999, which accounted for four of those jumps.  What followed in 2000 through 2002 was the polar opposite:

2000:     -9.1%

2001:    -11.9%

2002:    -22.1%

For 2023 and 2024, the annual S&P returns were 26.3% and 25.0%, respectively.  Were we to have similar numbers this year, my best advice would be to head to the life rafts.  Yet there are more than a few people who will blindly follow these silly people over the cliff.

Here’s the problem:

Stock market forecasts are notoriously inaccurate. Studies have shown that experts are often no better at predicting market movements than chance would dictate. Despite this poor track record, there's little accountability for wrong predictions. Forecasters rarely face consequences for inaccurate projections, allowing them to continue making predictions without repercussion.

These forecasts can lead investors to make ill-advised decisions based on fear or unfounded optimism. Rather than adhering to a sound, long-term investment strategy, investors might be tempted to react to market predictions, potentially harming their financial well-being.

Anyone can make stock market forecasts, regardless of their qualifications or expertise. This ease of production leads to a proliferation of predictions, many of which are baseless or poorly researched. 

Wall Street forecasts tend to exhibit a persistent optimistic bias. Analysis of past predictions shows that strategists consistently anticipate annual gains, even in years when the market experiences significant downturns.

Historical data reveals the futility of market predictions. One analysis found that Wall Street consensus forecasts had an average error of 14.2 percentage points when compared to actual market performance.  Such a large discrepancy makes these forecasts useless for making informed investment decisions.

Use a Ouija board if you must, but don’t say I didn’t tell you.

N. Russell Wayne

Weston, CT  06883

 

203-895-8877

www.soundasset.blogspot.com