This is the time of year when investors need to brace themselves as Wall Street pundits pelt them with their New Year’s predictions.
Every year the prognosticators eagerly dispense advice. Buy stocks or avoid stocks. Pile into bonds or ditch fixed income. Sit on the sidelines or jump in N-O-W with spare cash.
Just how accurate, however, are these predictions?
We traveled back to this time last year to see what the pontificators were saying about the 2013 investments to embrace and avoid. Here is a snapshot:
In a Kiplinger’s article in late 2012, the chief stock economist of Bank of America Merrill Lynch, observed that the sentiment on stocks for the new year hadn’t been this bearish since the financial institution began measuring stock optimism back in 1985.
“Bleak is the new black,” agreed Larry Hugest, chief executive of BNY Mellon Wealth Management, who noted that he also had never witnessed market sentiment so negative.
Meanwhile, a Forbes columnist predicted that stocks in 2013 could plunge by 10%. To back up his prediction, he cited such factors as the fiscal cliff, taxes going up on the richest Americans and poor employment figures.
It turned out that the widespread pessimism on The Street was dead wrong. By the end of 2013, the Standard & Poor’s 500 Index, which is often used as a proxy for the stock market, had soared by nearly 30%. In the chart below, you can see just what happened to domestic stocks in 2013.
In a recent piece over at MarketWatch, Chuck Jaffe acknowledged how bewildering the conflicting advice can be. Jaffe received an email from a divorced woman, now managing her own money, who was confused by the diversity of opinions that she was hearing from the guests on the journalist’s daily online talk show.
In response to the woman’s confusion, Jaffe wrote this: “The problem with listening to year-end roundups and year-ahead financial forecasts is that someone will be right, most will be wrong and all will be forgotten by everyone but you long before the year is out.”
We couldn’t have said it better ourselves.
Be skeptical of anyone predicting what the markets will be doing in the next 12 months. Chances are that most of the time they will be wrong.