Those Year-End Stock Market Forecasts

The big investment firms almost always have their economists or strategists issue forecasts of how much the market indexes will rise or fall the following year. In the past, I’ve urged readers to view these forecasts as entertainment. Don’t use them to manage portfolios. Here’s a good post from a statistician who took forecasts from the leading firms and pulled apart the logic of them.

The other most important thing anyway for you to see here is -that among only 10 strategists and despite the lower bias described from fast moving prices during forecast formation- none of them still hold a negative view for 2017! And therein lies a prodigious irony, since nearly 1/3 of the years -in the past two decades- have been negative (with average return in those years of -18%). Think about that for a moment as you consider the risk of the stock market. And that’s more negative years than most people, including these self-described “investment cognoscenti”, expect.

What’s troubling in relation to that is this in those same nearly 2 decades of forecast data, only 8% of individual projections were negative. This clearly shows how bullish-biased they are (as if a typical 9% annual prediction versus a 4.5% actual return wasn’t enough!), but the probability information given will still take this dismaying performance to the higher level.