Financial Soothsayers’ Forecasts Fell Short For 2024
Paul K. Fain, III, CFP®
Let’s have a little fun at someone else’s expense.
What do fortune-tellers, tea leaves and Ouija boards have in common? Their predictions are more accurate than Wall Street forecasts.
As one financial writer puts it, “Annual stock market forecasts are a sad, legacy Wall Street tradition.” Why do investors keep chasing forecasts each year? We desperately want the unknowable to be knowable. We want certainty in our financial plans where uncertainty is the actual norm.
Did the financial soothsayers succeed last year?
According to a popular investment newsletter, for 2024, “the consensus among most analysts is a modest single-digit gain for stocks. The median projection calls for the S&P 500 to rise by about 8%, while some of the biggest Wall Street companies expect the S&P to fall in 2024.” The U.S. stock market, as measured by the S&P 500 index, rose 24%.
“Small-caps and value stocks will outperform, and by a wide margin” declared another forecast. Both categories were respectable last year but lagged the broad market by 8% to 14% (a wide margin, just in the wrong direction).
One investment firm predicted that real estate investment trusts would outperform the S&P 500. They wrote, “While there is a high degree of certainty this will occur, the timing is always tricky.” Indeed, REITs advanced at a 5% return. The same adviser predicted that the outperformance of technology stocks would end in 2024. Instead, tech stocks had another roaring year, increasing 39%.
Bob Doll, chief investment officer at Crossmark Global Investments, released his popular annual predictions, including: “Stocks (will) record a new all-time high early in the year but then experience a fade.” The market disagreed.
Jeremy Grantham, chief investment strategist of GMO, gave similar advice: “Avoid U.S. stocks.” He also listed emerging-markets stocks as a 2024 opportunity; they finished in the black but up only 4%.
My favorite discount brokerage firm also projected a good year for international stocks. The index of developed markets increased 4%, another humble result compared to domestic stocks.
In all seriousness, these forecasts are put forth by intelligent, widely respected people. Often, the research upon which they base their forecasts has some merit. For instance, stock prices are high. Recessions and market corrections are inevitable. However, the challenges of knowing “when, what, why, where and how” make successful forecasting an overwhelmingly perplexing task.
At its worst, forecasting is a “marketing scheme disguised as investment research” as one journalist posits. Jason Zweig, writing for the Wall Street Journal, concurs that “the purpose of all these predictions isn’t to be accurate. It’s to start conversations with clients and generate trades.”
“The beginning of the year is the best time to think not about the next 12 months, but all the years to come,” adds Zweig.
Leave the crystal ball on the shelf as a paperweight. Develop a durable investment strategy that will support your financial plan. Keep costs and tax friction low. Make periodic tweaks. Be well in 2025!
This article originally appeared in the Knoxville News Sentinel online on January 31, 2025.
