March 5th, 2014
by Rob Isbitts, Sungard Investment Research
The start of each year is full of market predictions from investment strategists. I tend not to get too caught up in that (it is one of the benefits of being an independent firm - no one is compelling us to provide one!). Not wanting to get lost in the sea of 2014 market predictions, we now take a look back at the seven-week mark of the year...when many of these predictions are already out of the news cycle.
What we find is a sea of sameness. After a strong year for U.S. stocks, strategists are doing what they seem to do with annual forecasts: study the data, assess the trends, scour the world for clues to the future...and then just take the previous year's close and add 8-10% to arrive at the new year's predicted ending level.
To paraphrase market legend Steve Leuthold, "predictions are for show, but investment decisions are for dough" so we don't take these too seriously. However, when you look at the chart below, it seems that many strategists end up in the same place. Whether the forecast is for the S&P 500 stock index or the 10-year U.S. Treasury Bond yield, this list is mostly a cluster around the same figures. The last time I remember a tight grouping of predictions in the 8-10% gain area like this was at the start of 2008. That year did not end up well (S&P down about 37%). Suffice it to say, versus the sea of sameness we find in this year's prognostications, we'll take the "under" on that wager. The crowd is often wrong at the extremes, and we seem to be inching closer to an extreme in many market areas.