The Accuracy of Annual Stock Market Forecasts

Each December and January I make fun of the annual forecasts that emerge from the major investment firms. They usually cluster around the 8% to 10% average annual return, the the return in any year rarely is near the long-term average annual return. This article takes stock of how those forecasts are looking some far, and also takes a look at how some of the firms adjusted their forecasts are 2016 started much differently than they expected.

If these analyst forecasts were mostly in the right direction, you would expect a positive linear relationship between 1 and 2. Regrettably, there is a negative relationship instead. Never mind that the market continued its drop in February, even after the revised forecasts, and the rebound leaves the market still below many firm’s 2016, 2015, and even 2014 targets!

In other words, the larger the gap in January between the YTD returns and the year-end target, the more unlikely the chance the market will recover to the target by the year’s end.

Think about this: For 2016, the 13% gap noted earlier (after the standardization adjustment) is the largest gap among this data. That’s not a good omen.