The Stock Market Will (Will Not), Go Up (Down) in 2014

I firmly believe that most of the predictions about the stock market in 2014 may (or may not) come true. Impressed by my display of confidence? The recent history of predictions helps me be so bold.

It seems our brains are hard-wired to make, and be influenced by, prognostications. The business writer Jason Zweig calls it "prediction addiction." He likens it to our desire to impose recognizable patterns on what may otherwise be random facts.

But aren't there experts we can rely on? Don't the geniuses at Goldman Sachs know something? You be the judge.

Towards the end of 2011, the Chief U.S. Equity Strategist at Goldman Sachs predicted the S&P 500 Index would finish 2012 at 1,250. Yet the Chairman of Goldman Sachs Asset Management, a separate arm of the Wall Street empire, declared that the S&P 500 Index would more likely be above 1,400 at the end of 2012. The latter prediction proved more accurate as the index closed at 1,426.

Goldman Sachs continued to give mixed signals the following year. In the spring of 2012, the Chief Global Equity Strategist felt that the stock market still presented a strong buying opportunity. Soon thereafter, the head of the Macro Equity team, citing economic weakness, advised that clients should short (bet against) stocks. As we now know, the stock market continued its ascent to 1,848 at the end of 2013.

If we can't rely on stock mavens to get it right, maybe we can rely on the bond guru, Bill Gross. In July 2012, Gross famously wrote that "the cult of equity is dying." The reasoning behind this claim that stocks looked unattractive going forward was roundly lambasted by others for faulty reasoning. (I'll skip the arguments, which get a little dense.) So far Gross has appeared to be off-base, but he may not be wrong, just early.

Of course, you don't have to make, or follow, predictions. You can employ a diversified portfolio that encompasses what you think will happen as well as the possibility that you may be wrong. Diversification may not be as sexy as forecasting; however, boring sometimes isn't such a bad thing.

Words of Wisdom

The only function of economic forecasting is to make astrology look respectable.
-- John Kenneth Galbraith