It would be great to have a crystal ball that could tell us what the stock market will perform in 2024.
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A year ago, economists foretold that persistently high inflation and tightening financial conditions would lead to a recession in 2023. Some He even placed the probability of a recession in 2023 at 100%. Wall Street was equally severe, with The forecast of the average strategist. for the S&P 500 negative by 2023, the first time Wall Street predicted a year in the red for stocks since 1999.
Of course, the consensus views from a year ago were completely wrong, as the US economy enjoyed strong economic growth in 2023 and the S&P 500 finished the year up 26.3%. The fact that the economy and the stock market frustrate consensus predictions reminds me of the ninth rule of Bob Farrell's 10 Market Rules to Remember: โWhen all the experts and forecasts agree, something else will happen.โ TRUE.
How have my stock market predictions gone?
But not all predictions about stock market returns for 2023 were wrong: mine was right. Last year, I predicted that โthe market will probably go up, but there is a good chance it will go down,โ and in fact the market was up. He was also right in 2022 as I predicted that โthe market will probably go up but could go down,โ and the S&P 500, as I said could happen, was down 18.1%. My predictions for 2020 and 2021 They were equally prescient: for those years, I also predicted that the market would probably go up but could go down, and I was right, as the market went up 18% and 28.5%, respectively.
My prediction for 2024 is the same: the market will probably go up, but it could go down.
Why do I make the exact same prediction every year? Because it reflects what has happened historically: the stock market has risen approximately two every three years. And because that's the most specific we can be when it comes to predicting market returns with any accuracy.
What happens after years of strong return like 2023?
Investing in the stock market is like flipping a weighted coin that comes up heads most of the time. And that probability is about the same regardless of past returns, even after years of strong returns like 2023.
Between 1928 and 2022, the S&P 500 returned more than 20% in 34 years. The market generated positive returns the following year 22 times or 65% of the time (see chart below).
The stock market usually goes up, even when it returned more than 20% the previous year.
St. Louis Trust and Family Office
A simple look at the graph above shows that investing after years of strong returns was profitable. The data bears this out: The average return in the years following a strong year was 9.0%, not far off from the S&P 500's average annual return since 1928 of 9.8%.
What to do with my prediction for 2023
My prediction that the stock market will probably go up but could go down may seem pointless, but it is not. It provides a rough idea of โโwhat the market will do next year, which is the best anyone can do. If you have excess cash, it tells you that the odds favor going ahead and investing. However, it does tell you that if you receive a once-in-a-lifetime influx of money from the sale of a business, you may want to invest over time because the market could be down.
In short, making investment decisions based on non-specific but correct predictions is better than acting based on specific but hopelessly erroneous predictions. My advice is to quiet the noise of what may (or may not) be happening in the economy and geopolitics and resist listening to investment experts' predictions of the future.
