Much time, effort and money are expended every year producing and analyzing economic and market forecasts. One wonders why so many analyze the reports, pouring over them every December, considering their track record for veracity. Before we render a verdict on the three previous forecasts, let us consider two quotes, one by the famed economist and ambassador John Kenneth Galbraith and the other by investor Warren Buffet.
“The only function of economic forecasting is to make astrology look respectable.” ~ JK Galbraith
“We’ve (Charlie Munger and I) long felt that the only value of stock forecasters is to make fortune tellers look good.” ~ Warren Buffett
Some may say those are just a couple of successful smart people being glib for attention. Well, let us consider the forecasts and the actual results. We begin with the consensus forecast for 2023. Forecasters predicted with high conviction that the economy would go into a recession, and, for good measure, the stock market would decline. Despite high inflation and a slowdown in the real estate market, there is nothing remotely accurate in last year’s consensus forecast. Like a hurricane, we will name the great recession of 2023 “Casper”. The economy continued to surprise with its resiliency, employment remained strong, and, in addition, the stock market as measured by the S&P 500 returned 26.3%.
Let’s keep going. Surely the consensus forecast could not be wrong two years in a row. In 2022 the same forecasters thought mega cap technology companies and innovative consumer discretionary companies such as Amazon and Tesla would be immune to higher interest rates due to their defensive qualities. You may remember these companies, as a group, loosely referred to as FAANG or FAANG+ stocks to include Facebook, Amazon, Apple, Netflix, Google (now Alphabet), Microsoft and Tesla. An ETF was created for investors to buy the companies’ shares as a group in one trade. For the year, the S&P 500 would decline -18.11%, and both the technology and consumer discretionary sectors would fall by greater than -30%. And no one forecast the Russian invasion of Ukraine, which would have included a recommendation to invest in energy and defense companies such as Exxon and Raytheon, both of which performed well for the year.
In 2021, speculation reigned, and investors had all sorts of speculative selections to choose from. Speculators had hopes that paying ever higher prices for stocks, SPACs and cryptocurrencies would place them on a pathway to riches and wealth. You may recall MEME stocks such as GameStop and AMC Entertainment Holdings, unprofitable companies with slowing sales and questionable long term business models. Many posited everyone would be working from home or, even better yet, work from anywhere utilizing the products and services from the companies that make it possible such as Zoom Video Communications. Zoom would become ubiquitous and join the vernacular as a verb, to Zoom, and an adjective, a Zoom Meeting. Ultimately, Zoom’s share price would decline -45.5% in 2021, while the S&P 500 would rise 28.7%.
Which brings us to the current consensus forecast for 2024. The same forecasters who missed on the prior three years have predicted with high conviction that the economy will perform a soft landing, avoiding a recession, and the Federal Reserve will significantly cut interest rates. The futures market points to five 0.25-point interest rate cuts with at last check, a 50-50 probability, cuts will begin at its March meeting. Time will tell if this year’s consensus forecast proves correct. One could say that forecasters are due to be correct eventually.
At Curran we will leave the predictions to others and stick with what we know best. We continue to believe that quality investing remains the best strategy for the long term. While it may fall out of fashion for periods of time, it never falls far out of fashion. Quality investing endures, and those relatively brief periods when the approach is out of favor, invariably proved to be buying opportunities for prudent, long-term investors who remain patient, levelheaded and remain focused on their long-term investment goals. We urge you to remain invested in quality companies and not be swayed by market forecasts and investing fads.
Kevin T. Curran
Co-CEO & Chief Investment Officer
At Curran we value service over sales and believe quality service yields happy clients. Below is our 4-step process (the first three steps at no cost to you).
A short introductory call for us to get to know one other. During this call we will discuss your financial goals, concerns and hopes for the future.
In this meeting we will go over your current financial situation, take a deeper look at your goals, discuss your risk tolerances, and collect the data necessary to build a formal proposal.
Based on our data gathering session, our Private Wealth Managers will present you with a custom proposal tailored to your needs. We encourage individuals to take the time to evaluate this proposal.
If you are comfortable with the proposal and choose to invest with Curran, our team will be there every step of the way assisting in opening the recommended accounts and facilitating all necessary parts of your onboarding process.