Wall Street strategists publish forecasts for the behavior of the stock market in 2024.
Do not listen to them.
Predictions are usually wrong and when they are right it is only by accident.
Let's consider their prophecies for 2023. At the end of 2022, strategists predicted that the S&P 500 would end 2023 at 4,078, a gain of 6.2 percent from where it started, according to Bloomberg data.
At the moment, the market is above 4,700, a gain of more than 22 percent. No doubt these forecasts were so wrong because 2022 was a truly terrible year for stocks, and also one that most analysts failed to foresee. So the predictions for 2023 were unusually modest, reflecting the pessimism that prevailed when they were made.
The median forecast on Dec. 19 called for the S&P 500 to close 2024 at 4,750, according to Bloomberg. Projections continue to change and will surely increase if the market continues to rise. When the market goes up, forecasts usually go up too.
These forecasts are not scientific and I only bother to address them because they receive enormous coverage and serve as the basis for advice given to thousands, and perhaps millions, of people.
If you find them entertaining or enlightening, great. Enjoy them.
But at all costs, don't take them at face value because there is no evidence that anyone can reliably predict market movements, and there is a lot of evidence that buying and selling stocks based on your views on imminent market movements is a fool's game.
It's best to invest with humility: accept that no one knows where the market is going moment to moment, and focus on the long term anyway.
The panorama
For many decades, the entire global stock market has been trending upward, and as long as capitalism survives and companies continue to make profits, the stock market as a whole is likely to rise. But it certainly won't be like that all the time. If you've been in the market, you know that it goes up and down. These movements are, for the most part, unpredictable.
Yet Wall Street strategists make predictions anyway, despite an extraordinary track record of ineptitude.
In 2020, using data compiled by Paul Hickey, founder of Bespoke Investment Group, I found that since 2000 Wall Street has frequently gotten the market direction wrong. At my request, Mr. Hickey has updated the data.
The figures show that from 2000 to 2023, the average Wall Street analyst predicted the S&P 500 would rise 9 percent annually, on average. In reality, the annual increase averaged 6 percent.
Even these figures underestimate the degree of failure.
In 2018, for example, the market fell 6.9 percent, although forecasters said it would rise 7.5 percent, a difference of 14.4 percentage points. In 2002, the forecast called for a 12.5 percent rise, but the stock fell 23.3 percent, a difference of almost 36 percentage points.
And in 2022, the forecast called for an annual increase of 3.9 percent. But the stock market lost 19.4 percent. The forecasters were wrong by a margin of more than 23 percentage points.
Taking into account gaps like these, Wall Street's median forecast from 2000 to 2023 missed its target by an average of 13.8 percentage points a year, more than double the stock market's actual average annual performance.
The situation now
Many Wall Street strategists are astute analysts of what has already happened. But the economy and markets change constantly, in unexpected ways. Reliably forecasting stock market averages 12 months ahead is beyond anyone's ability.
Declining inflation combined with a strong labor market has led many people to believe that the Federal Reserve will soon cut the short-term interest rates it directly controls. This is considered bullish for the stock market, which has risen in recent months. The S&P 500 is about to surpass its last high, reached in January. And if there is no recession next year and interest rates go down, it is reasonable to think that the market will continue to rise.
This, in a nutshell, is the bull case. But it is also easy to imagine bearish alternatives.
For example, if the Federal Reserve cuts interest rates prematurely, inflation could soar. In that case, the central bank may need to raise interest rates again, since Paul A. Volckerthe former chairman of the Federal Reserve, had to do in 1981, which triggered a second recession in two years.
There could be a โsoft landingโ for the economy in 2024. But so could a recession.
David Rosenberg, a veteran strategist and economist, is still predicting one, as it has done since early 2022. He expects the economy to falter, interest rates to plummet and stocks to fall. โTreasury bonds, not the stock market, will be the best-performing asset class in 2024,โ he told me in an interview.
Given the complexity of the world and all the crises, large and small, that are already obvious, it would take a very long column to outline all the things that could go wrong in a forecast for the coming year. And I am sure that there will be important changes that few people imagine yet.
Fortunately, you don't need to know these things to be a successful investor.
The key, first of all, is to have enough money set aside to pay the bills, because investing involves some risk and you don't want to take risks with money that you absolutely need. Then, to minimize your risks when holding stocks, decide to invest in the entire market for decades through low-cost diversified index funds and avoid any attempts to time the market. Wall Street predictions can tempt you to buy and sell at the wrong times. It is safer to ignore these forecasts completely.
Actions are only part of the program. I also invest in high-quality bonds and do it the same way, with broad, low-cost index funds. Investment grade bonds, and especially Treasuries, typically provide a cushion when stocks fall (although they did not do so in 2022). Treasury bonds, in particular, are safe investments, despite fiscal stresses resulting from the US government's inability in recent years to reach a consensus on spending and taxation policies.
I find these forecasting exercises fascinating and sometimes learn a lot from them, but I don't expect any of them to provide a roadmap to the future.
Hope for the best, prepare for the worst, and move on with your life. Unfortunately, Wall Street's forecasts won't help any of that.
