2024 Forecasting Follies
It’s that “wonderful time of the year” when we get to look back at the market forecasts given by the major banks as the year began to how reliable (or unreliable) these one-year forecasts really are. We have been doing this analysis every year since 2017. After eight years, only once have the major banks been within 10% (and that was 9.6%). Let’s look at 2024 forecasts.
Each year these annual forecasts are heavily publicized, potentially impacting the decisions and portfolio designs of both professional and individual investors. But should they?
Since 2017, the forecasts have been terribly unreliable. Let’s once again take a look and see if we finally got more direction.
Most recently, the S&P 500 closed 2024 at 5,882. This compared to the average forecast of 4,856. A miss on the low side of 17.4%. The largest low miss since we started tracking and the third largest miss on an absolute basis.
Highlights:
Not one bank was high on their prediction – all were low. Rarely in bull markets do you see them miss high. It appears they are naturally conservative.
The most aggressive forecast was Oppenheimer who had the market closing at 5,200. Yet, they still missed by 11.6%
The biggest miss was the well-known firm of JP Morgan who actually forecasted the market to be down and close at 4,200!
The only other bank forecasting a down market was Morgan Stanley who missed by 23.5%. Ouch!
How to respond to forecasts:
First, you can use these forecasts for fun or learning, but not for investing. Probably best just to not listen and avoid being tempted to take them too seriously.
Second, avoid recency bias, herd mentality, and overconfidence. Make sure you have a well-diversified investment allocation focused on what risk you can assume. In fact, investors that didn’t make any changes and rode out the wild wave crushed these forecasters in total returns.
Third, keep your timeline in perspective. Most people have mid-to-long-term investment horizons and what happens in a month or quarter or even a year, does not really matter that much.
In case you are curious, the average forecast for 2025 is 6651, a 13.3% increase over December 31, 2024 closing price. Sure would be nice if they were finally right!
Sources:
https://www.financialsamurai.com/2024-wall-street-forecasts-for-the-sp-500-stock-market/
https://www.youtube.com/watch?v=6o0didP436g
https://www.investors.com/news/stock-market-forecast-2024-a-soft-landing-may-not-bring-the-gains-you-expect/
