More Useless Stock Market Predictions - 2023 Edition

With a new year comes new predictions of how the stock market will perform. Unfortunately, there is not always a strong correlation between predictions and results. As you will see, the prognostications of the experts and the average investor are equally unreliable.

 What Happened in 2021?

Barron's polled 10 investment companies (like Goldman Sachs and JP Morgan). The S&P 500 Index stood at 3,756 entering the year. The experts offered a wide range of targets for the year -- from a low of 3,800 to a high of 4,400. In fact, the S&P 500 Index finished 2021 at 4,766, well above even the most optimistic opinions.

What Happened in 2022?

Yahoo Finance collected the forecast of 14 strategists for 2022. The experts once again had quite divergent views as to the S&P 500 ending value -- from 4,400 to 5,300. Oops! Strong inflation and a war in Ukraine derailed those picks. The Index closed at 3840, well below even the lowest forecast.

Predictions for 2023

So what does Wall Street say for this year? According to Yahoo Finance, the range is once again quite varied -- from 3,675 to 4,500. Barron's panel was similar, with picks from 3,930 to 4,800. We'll see.

What About the Average Investor?

At the end of 2021, Jason Zweig of The Wall Street Journal polled subscribers of his newsletter about 2022. The average prediction was a gain of 6%, whereas a loss of 19.64% occurred.

Moreover, the average investor could not accurately remember their prediction from the previous year. Zweig suggests that the investors can't reconstruct their previous ignorance; instead, they use current information to make it seem as if they knew it all along. "Looking back at yourself a year ago, what you know now has indelibly altered your perception of what you knew then."

As Zweig notes, we all have countless hunches over the course of a year, but we tend to remember the ones that turn out to be right while forgetting those that did not pan out. This "hindsight bias" provides us with the illusion that we foresaw the future and that what happened was inevitable.

Ignoring Predictions

Relying on the "experts" gives us a sense of security in a place where certainty does not really exist. In both 2021 and 2022, the performance of the stock market was outside a fairly wide range of predicted outcomes.

In the end, your risk tolerance, investment time horizon, and financial goals should be paramount in any investment decision. A diversified portfolio will help you to manage the fact that short-term returns, such as a year, are unknowable.

Feel free to contact me to discuss my thoughts on how to deal with such uncertainty and focus on the long term.

Words of Wisdom

The future ain't what it used to be. -- Yogi Berra