Stock Market Forecasts That Are Worth Reading

AW Admin |
I recently blogged on the unreliability of stock market forecasts (Are Stock Market Forecasts Worth Reading?).
 
Mutual fund firm Dimensional Fund Advisors published a similar article (Jim Parker, 2016: Ten Predictions to Count On) a few days ago. The author details additional examples on the unreliability of forecasts but also listed ten forecasts for which he has complete confidence.
 
The failed forecast example: On January 2, 2015, “22 strategists polled by the Wall Street Journal estimated an average increase for the S&P 500 of 8.2% for 2015. The most optimistic individual forecast was for a rise of 14%. The least optimistic was 2%. No one picked a fall. As it turned out, the benchmark ended marginally lower for the year.” So all 22 strategists were wrong.
 
The “sure thing” forecasts were more interesting:
  1. Markets will go up some of the time and down some of the time.
  2. There will be unexpected news. Some of this will move prices [of stocks].
  3. Acres of newsprint will be devoted to the likely path of interest rates.
  4. Acres more will speculate on China’s growth outlook.
  5. TV pundits will frequently and loudly debate short-term market directions.
  6. Some economies will strengthen. Others will weaken. These change year to year.
  7. Some companies will prosper. Others will falter. These change year to year.
  8. Parts of your portfolio will do better than other parts. We don’t know which.
  9. A new book will say the rules no longer work and everything has changed.
  10. Another new book will say nothing has really changed and the old rules still apply.
 
I have faith in these forecasts since the article predicts that
  1. Global economies, interest rates, stocks and commodity prices will continue to fluctuate in unpredictable ways,
  2. Unexpected news will be, well, unexpected and move the markets in unpredictable ways
  3. Pundits will constantly make predictions. A few predictions will be right, for the same reason someone wins the lottery.
The author suggests that “setting your investment course based on someone’s stock picks or expectations for interest rates, the economy, or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So a better option is to stay broadly diversified and, with the help of an advisor, set an asset allocation that matches your own risk appetite, goals, and circumstances.”
 
Notes:
 
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
 
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
 
Keep in mind that:
  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided by Arthur Stein is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and they should not assume that these generalizations or information apply to them.
  • Investments mentioned may not be suitable for all investors.