Opinion: This is the only 2023 stock market prediction you need to know
When you hear or read about an investment expert’s outlook for the coming year, keep one thing in mind: all the forecasts for 2022 were wrong.
Not just a little off, but complete and complete failures.
Oh, some strategists will claim victory for saying that the SPX stock market,
would fall in 2022 or that the TMUBMUSD10Y Treasury bonds,
would have returns north of 3%. Or that the yield curve would invert or that inflation would be more rigid than expected. But they don’t deserve laurels for that.
No one said that the market would peak in the first day of the calendar year and go downhill from there and ultimately that’s the only 2022 story that investors will remember.
Expect the forecasts for 2023 to be similarly miscalculated.
That doesn’t mean investors should ignore or dismiss the exercise of experts offering perspectives, but it is why you should question the motives of fortune tellers and review one of the greatest market forecasts of all time that is on its way to becoming really no matter what. market dishes next year.
Face it, market strategists and economists forecast not because they want to, but because they have to. Keeping your jobs depends on making mostly unconvincing predictions.
Say something memorable, and the expert and the firm could be held accountable for it; pabulum, however, is overlooked when it is bad.
obvious observations
Thus, the forecasts lack insight, gravitating toward the middle ground, toward obvious observations about the effect of business and stock market cycles.
“It looks bad if they don’t have an opinion, but worse when they’re wrong about something, so most forecasts say as little as possible,” Jeff Rosenkranz, fixed income portfolio manager at Shelton Capital Management, said after we wrapped up an interview last week for my podcast, “Money Life with Chuck Jaffe.” “You don’t get a lot of information, if they have really valuable information, this is not where they want to tell the world, so most forecasts just aren’t worth much.”
Adds Howard Yaruss, a New York University professor and author of the recent book “Understandable Economics”: “If you’re talking about an adjusted forecast on stocks and asset values, I don’t see how anyone could go there; accurate predictions are not going to happen, or it will be luck if they come true. His statements are more about marketing than about the market.
One of Wall Street’s best-known forecasters says credibility is impossible without accountability, but he acknowledges that experts walk a tightrope if they say too much.
Bob Doll, chief investment officer at Crossmark Global Investments, began making forecasts (10 specific forecasts covering markets, the economy, politics, and more) in the 1990s while working for Oppenheimer. He took the drill with him during well-documented career stops at BlackRock BLK,
Nuveen and elsewhere, and historically it’s been just north of 70% of their calls.
‘forge of words’
“A forge of words is taking place; you word them so that you have a noticeably better than 50% chance of being right, and then you say some things that you really believe will make you sound really smart if they happen without making you sound dumb for believing it,” Doll says.
Good forecasts aren’t just an academic rote exercise, Doll says, as long as they’re relevant, elicit thoughtful reactions from the audience, and are backed by the expert. Doll reviews her forecasts every quarter and doesn’t change them in response to current events.
“You call the beast as you see it,” he says, “and then you stand by it and live with it, and you don’t worry about getting it right because if you haven’t got anything wrong, you’ve just stated the obvious.
Wilder Market Forecast
Which leads to what I think is the wildest and best market forecast of all time, even if it’s more obvious than it sounds: Dow DJIA,
116,200.
If that sounds far-fetched with the Dow Jones Industrial Average at about 33,500, and down 8% since the start of the year, consider that the forecast was made in 1995 with the index hovering around 4,500.
Also, the call was for the benchmark to reach that level in 2040.
Bill Berger, founder of the Berger Funds, which merged with the Janus funds in 2002, made the call at the first Society of American Business Editors & Writers Conference on Personal Finance in Boston, giving one of the best talks I’ve ever heard, mostly criticizing forecasts and the habit of giving too much importance to market milestones.
(If the Dow 116,200 prediction sounds familiar, chances are you’ve heard of it, as I raised it periodically while working as a senior columnist for MarketWatch between 2003 and 2017. Today marks the return of my column to this site, and I’m glad. to be back.)
Berger cited what he called “the two rules of forecasting.”
Rule 1: For every forecast, there is an equal and opposite forecast.
Rule 2: Both are wrong.
Ironically, 116,200 sounds far-fetched, but it looks totally perfect.
By 1995, Berger had worked in investments for 45 years; when he started, the Dow was below 200. Mathematically, he saw the future of the Dow as a reflection of the past; repeating the growth he had experienced would bring the benchmark to 116,200 over the next 45 years.
Berger, a septuagenarian at the time, wryly suggested that if he was proven wrong, people would find him to discuss it; Unfortunately, he died a few years later.
the long game
Despite the outlandishness of the forecast, Morningstar estimates that reaching the goal would have required an annualized gain of approximately 7.35% over the 45 years. When the Dow Jones peaked on January 4, 2022, the necessary gain shrank to 6.33% annualized.
As of December 1, Morningstar estimates that reaching 116,200 in the fall of 2040 will yield a 7.07% annualized gain, which seems like a safe bet.
Therefore, the disappointments of 2022 have not derailed long-term investors any more than they have collapsed the biggest market forecast in history.
That is the lesson to remember when faced with forecasts for 2023; neither market problems nor the ability of experts to diagnose them will derail long-term financial plans or make lifetime goals unachievable.
That’s a prediction worth betting on.
Chuck Jaffe is a columnist for MarketWatch and host of “Money Life with Chuck Jaffe” podcast.