CKBlog: The Market
Wednesday, January 17, 2018
Look Out for Outlooks!
by Steve Haberstroh, Partner
Look Out, the 2018 Financial Outlooks are out!
Outlooks are rarely accurate. It is impossible to successfully and consistently predict the outcomes of the financial markets, especially in the near term. 2017 is a perfect example of why the markets have the habit of proving prognosticators wrong.
Going back to late 2016, on the heels of the surprising BREXIT vote, the political and financial world was turned on its head again when candidate Trump was unexpectedly elected President. Financial markets all over the world moved faster than most prognosticators could react. Market Strategists scrambled to adjust and publish their Market Outlooks for 2017.
The consensus? Tepid US stock market. Trump related winners and losers. Strong US dollar. Interest rates in the US move higher.
How’d that work out? The S&P 500 Index ripped higher by +21.82% (including dividends). The US dollar was weaker by -8.52% (against a basket of leading global currencies). True, the US Federal Reserve increased its Fed Funds Rate three times to 1.50% during the year, but the US Government Ten year yield dropped by -1.59% and the US Government 30-Year yield dropped by -10.64%. Consensus was wrong.
Need more evidence? Let’s look at where the investment houses predicted the S&P 500 Index would finish in 2017. These forecasts (guesses) were made in December 2016 after Trump was elected. A sampling (sourced by Oliver Renick at Bloomberg):
| Bank Name | S&P 500 Price |
|---|---|
| Bank of America | 2,300 |
| Bank of Montreal | 2,350 |
| Barclays | 2,400 |
| CanAccord | 2,340 |
| Citigroup | 2,325 |
| Credit Suisse | 2,300 |
| Deutsche Bank | 2,400 |
| Goldman Sachs | 2,300 |
| Jefferies | 2,325 |
| JP Morgan | 2,400 |
| Oppenheimer | 2,450 |
| RBC | 2,500 |
| ScotiaBank | 2,350 |
| Stifel Nicolaus | 2,300 |
| UBS | 2,300 |
| Mean | 2,356 |
| Median | 2,340 |
| High | 2,500 |
| Low | 2,300 |
ACTUAL S&P 500 CLOSE END OF 2017: 2,673.61
The closest forecast was that of RBC which was short of the actual close by 7%. The furthest from the actual result was shared by five market “sages” who were each short by 16%. The median forecast by the “brains” of Wall Street was off by more than 14%. Nobody in the group predicted the magnitude of the strength in US equity markets.
Takeaway? Market strategists, while usually very well-spoken and polished, haven’t a clue what will happen in the near term. As convincing as they may seem, please resist the urge to trade on their musings—more often than not, it’s just noise.
“Those who have knowledge don’t predict. Those who predict don’t have knowledge.” ~Lao Tzu
If you’d like to learn more about how turning off the “noise” helps us manage our clients’ wealth, please call us at 203-682-7200 or email me at .(JavaScript must be enabled to view this email address).