Column: When Market Forecasters Should Earn Their Credentials: McGeever

Column: When Market Forecasters Should Earn Their Credentials: McGeever

ORLANDO, Fla., Dec 8 (Reuters) – When Yogi Berra said it was hard to make predictions, especially about the future, he probably didn’t have financial market analysts in mind.

But the famous baseball player’s famous malapropism, also similarly expressed by others, probably applies as much to predicting the outlook for stocks, bonds and currencies as anything else, as pointed out the tumultuous events of 2022.

Wall Street analysts are notoriously optimistic. Some might say it’s because of the investment banking fees their employers receive from S&P 500 constituent companies, and because being bullish is better for driving business.

Also, stock markets generally go up, so down years are by definition surprises. However, this is precisely where clients can reasonably expect their well-paid investment banking and fund management experts to make their living.

Crashes are hard to time, but they often follow a slow buildup of financial imbalances, rising interest rates, or specific triggers: the Great Depression, the oil shocks of the 1970s, the dotcom bust, Lehman.

Some of the biggest crashes on record – the Black Monday of October 1987 or the pandemic plunge of March 2020 – don’t even register on the annual scoreboard and are eventually subsumed into the “up” years. The clawback powers of equity investors are strong.

So does their optimism, which may explain why analysts almost always predict that the coming year will be good. This year was no exception.

A Reuters poll of 45 analysts from Dec. 1, 2021 showed the median end-2022 forecast for the S&P 500 was 4,910 points, which at press time translated to a 7.5% upside. .

The median earnings growth forecast was just under 8%.

Right now, the S&P 500 is below 4,000, down 17% year-to-date and on track for one of its biggest falls in 80 years. Fourth quarter earnings growth is expected to be negative.


Admittedly, hardly anyone foresaw Russia’s invasion of Ukraine in February, the unleashed chaos in commodity and energy markets, and the explosion of global inflation. This was obviously a blow to equities and risk assets.

But price pressures were already a clear and present danger at this time last year – global supply chains were clogged, and Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen declared within days of each other that inflation was no longer “transitional”.

Even after Russia’s February 24 invasion of Ukraine brought war to Europe’s doorstep, Wall Street’s confidence – some might say hubris – was alive and well. A Reuters poll in late May showed the median end-2022 forecast for the S&P 500 was 4,400 points, reflecting an 11.7% gain at the time.



Such is the nature of the macro and market forecasting game, if you get it wrong, you better hope enough of your peers will too. It’s safe to say that’s what happened this year.

Deutsche Bank’s Jim Reid noted on Wednesday that only 19% of 750 respondents – mostly customers – to the bank’s 2021 year-end survey believed the S&P 500 would post a negative return this year, and only 3% expected a decline of more than 15%.

This is despite respondents correctly saying that the two biggest risks for 2022 are “higher-than-expected inflation” and “an aggressive Fed tightening cycle.”

But even then, hardly anyone really predicted how powerful inflation and the Fed’s response would be – only 2% of respondents thought US consumer price inflation would be above 7. % by the end of this year, and the median rate hike estimate was 50 basis points.

Their predictions for the US bond market were even more off the mark – only 2% of respondents expected the 10-year Treasury yield to end this year above 3.0% and only four people thought it would be above 3. 5%. It is currently 3.48%.

“If you were one of these four people out of 750, please email me and tell me your forecast for the next 12 months,” Reid joked in a note Wednesday.

Nobody knows what 2023 has in store, but the overall outlook for Wall Street is again quite promising. A Reuters poll of 41 strategists released Nov. 29 showed the S&P 500 will end next year at 4,200, up 6.8% from Wednesday’s close.

Citi analysts, however, believe the consensus is far too optimistic, with current US stock market prices implying earnings growth of around 4% next year.

They say an earnings recession is coming and point out that the average decline in earnings in previous recessions over the last half century is 28%. Beware of bulls.


(Views expressed here are those of the author, columnist for Reuters.)

Associated columns:

– Market forecast 2023 – when the outrageous and plausible blur

– Avoiding recession could whip the markets

By Jamie McGeever; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

Jamie McGeever

Thomson Reuters

Jamie McGeever has been a financial journalist since 1998, reporting from Brazil, Spain, New York, London and now back in the United States. Focus on the economy, central banks, policymakers, and global markets – especially currencies and fixed income. Follow me on Twitter: @ReutersJamie

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