December 16, 2021

The year-end ritual of predicting where the Dow Jones Industrial Average or the S&P 500 will close at the end of the next year has been going on now for several weeks. With much fanfare, Wall Street analysts give predictions with such conviction that many believe they must know something that the rest of the population doesn’t. Many believe that they must have a ‘secret sauce’ of knowledge, sixth sense and computer algorithms that gives them the ability to see into the future.

Just how accurate is this?

In a New York Times article written by Jeff Somer, he found the stock market predictions from 2000 through 2020 missed their target by an average of 12.9%.¹ It would not be an understatement to say these predictions were not accurate.

In the past we have written several articles about analysts and major Wall Street firms trying to predict the future and where the major averages will close the next year, click on these links to see the January 2019 and January 2020 newsletters. These articles highlight the inability of anyone being able to predict where the stock market will close twelve months into the future.

Just to take one year, 2020, as an example:

  • In 2020, the global pandemic was not predicted.
  • In 2020, no predictions anticipated a 35% bear market quickly followed by 2 days of gains of over 9% in the S&P 500.
  • In 2020, Wall Street did not predict an overall gain in the S&P 500 of over 16% for the year. Just a few of the predictions for 2020 were: Citigroup predicted a 4.5% gain, JP Morgan a 6.8% gain, Goldman Sachs a 4.5% gain and UBS predicted a decline of over 7% for the S&P 500.

It is hard to see how investors receive any benefit or value from predictions that are consistently so far off the mark. For the long-term investor, this should be considered just useless noise.

Conclusion

At Prato Capital, we know there is no secret sauce. Those making market predictions have no special knowledge, sixth sense or secret computer algorithm that allows them to predict the future. We believe the long-term investor is best served working with their trusted financial advisor to ignore any of the stock market predictions and stick to their well thought out and personalized investment plan.

This is what helps our clients tune out the noise and enjoy their lives.

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.” – Warren Buffett

“Pundits forecast not because they know, but because they are asked.” – John Kenneth Galbraith

¹ Somer, J. “The Markets Are Confused, but Wall Street Is Still Making Predictions.” The New York Times. December 3, 2021. www.nytimes.com/2021/12/03/business/omicron-stock-market-forecasts.html?smid=url-share