Beware of Wall Street's Groundhog Predictions

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When the famous groundhog is pulled from his burrow today to drop his meteorological insight on the waiting world, a lot of good-natured banter will follow. The assembled press corps’ live reports from Punxsutawney, PA, will be appropriately accompanied by knowing winks into the cameras. Phil’s forecast is appreciated as a bit of inconsequential fun; nobody takes it too seriously.

Unfortunately, that’s not the case on Wall Street.

Market pundits emerge at this time of year to offer their predictions for the next 12 months. Though, like Phil, they receive a lot of media attention, those prognostications are anything but frivolous and used to make financial decisions that can profoundly impact people’s lives. And that’s a problem because the unpredictable nature of the markets ensures that much of their forecast will be wrong.

They’re about as accurate as Phil.

A sampling of market calls published by Bloomberg at the beginning of last year makes the point:

  • Goldman Sachs and Barclays Private Bank both forecasted global economic growth of 4.5%, a 1.6% overshot (so incorrect by about 35%), according to the World Bank’s latest assessment.
  • Credit Suisse said U.S. inflation would slow to 3.9%. Annual core inflation came in at 5.7% for the 12 months ending December 2022.
  • “We see another year of positive equity returns coupled with a down year for bonds,” predicted the BlackRock Investment Institute. It got the bond part right.