It’s forecasting time again!
That’s right. As the New Year approaches, every investment pundit will have to issue his (or her) forecast for 2015.
Will interest rates go up? Will the ruble go down? Will the stock market go up? How about oil?
How can so many smart people be so very wrong?
The fun thing about New Year forecasts is that you can enjoy seeing so many brilliant people say things that turn out to be oh-so wrong.
(Let’s not forget how well that collective brilliance worked earlier this year. One of Bloomberg’s lead stories for 2014 was “100% of economists think yields will rise within six months.” Ooops! They actually fell significantly.)
Or consider this quote attributed to John Kenneth Galbraith:
“The only function of economic forecasting is to make astrology look respectable.”
So now that we’ve discredited the whole idea of foretelling the investment future, let’s look at what those fearless forecasters are suggesting for 2015.
Puny returns in 2015?
So far, the consensus seems to call for puny stock returns in 2015. Many investment strategists are predicting stock-index gains of 5% or less, before dividends.
Adding dividends of roughly 2%, total returns for stocks would reach about 7% in 2015 if those analysts are correct. (By the way, stock strategists at Goldman Sachs are predicting lower returns of only 2% before dividends.)
Why so low? The rationale is that stock prices have already risen significantly since 2009 and prices and valuations are high.
But don’t distress. In the topsy-turvy world of forecasting, this pessimism could actually be good news.
Paradoxically, says the Wall Street Journal, this may point to higher returns ahead. “It is another sign that investors aren’t yet slipping into the excess optimism that pushed stocks to unsustainable levels before the collapses of 2000 and 2008.”
Got that? Dim forecasts for 2015 are actually good. The less people expect from the market in 2015, the more room it’s got to grow.
The Takeaway: Ignore the forecasts and stick to your customized investment strategy. At some point, the market will stumble. Don’t let that throw you off course. If you’re in it for the long haul, what the market does out of the gate in 2015 won’t matter. And remember: most of those forecasts will be wrong.