Forget the Forecasts!

During my early years in this industry, I would save any forecast article or prediction I came across. At first, I did this to see who was correct. After a few years, I did it for humor.

I realized these predictions were not much better than a weather forecast. The forecasts I’ve collected from years back and the ones for 2023 all have the following: an extremely intelligent author with several advanced degrees, employed by a firm with substantial resources and a competent and convincing argument as to why they think they’re correct. But clear gaps emerge between forecasts and what actually happened. 

For example, the J.P. Morgan 2022 Market Outlook, published Dec. 15, 2021, paints a rosy picture for 2022, “with expectations of further equity market upside and above-potential growth…” according to the brokerage firm’s economists, adding that overall, we would experience “a strong cyclical recovery… within a backdrop of still-easy monetary policy.” The last sentence is particularly interesting, since the Federal Reserve has raised its Fed Funds rate six times as of this writing.

The predictions included an above-average 3.7% GDP growth rate for the U.S. in 2022 (we are actually on track for negative growth overall for the year), and “market upside” for stocks. The report also predicts that the S&P 500 will reach 5050 by year-end (compared with roughly 4,000 as of this writing), with 20%+ returns. As most of us know, the markets are down more than 20% across the board. 

Maybe it’s unfair to pick on just one brokerage organization, so let’s turn to the Merrill Lynch investment outlook published at the end of 2021, entitled “The Great New Dawn.” Among other things, Merrill’s economic team predicted “above-trend economic growth” and a “budding equity culture” that will drive “the secular bull market for years to come.” The report concludes that “the macroeconomic backdrop should remain supportive of equities.” 

Around the same time, the forecasters at Citigroup published their “Outlook 2022,” entitled “The Expansion Will Endure: Seeking Sustained Returns.” The firm’s report predicts “continuing economic growth” and “moderating inflation.” In a slight elaboration, we are told that “global GDP growth will be solid,” and “inflation is likely to retreat to tolerable levels in 2022.” 

None of these economic teams foresaw a nasty bear market decline in the U.S. and global markets, the dramatic rise in interest rates or the economic slowdown we are experiencing now.  

I’m not writing this to throw shade on the above companies—they are global leaders in their industry. Rather, the point of this article is to emphasize how difficult it is to predict markets—and to really drive home the difference between what we can control (our decisions), and what we can’t control or predict (the markets).