So Here's the Market Outlook for 2024
Key Takeaways
The bulk of the market predictions for 2023 by the best and brightest in finance ended up being way off the mark.
The evidence from dozens of these annual forecasting events has yet to dispel the notion that humans are terrible forecasters of the future.
Don’t base your investment decisions on such outlooks.
Relying on what research and evidence have proven for your investment plans, while managing expected fluctuations on an annual basis is the wisest course of action.
We should be very cautious in what we expect of our prescience.
It is that time again when banks, money managers, financial news, and investment professionals make predictions about how markets will perform over the coming year. If you had wised up on what happens in the investment landscape, then over time you’d have realised that the only purpose of these market outlooks are for us to look back in a year’s time and comment on how pointless and far off these predictions were.
Unfortunately, far too many investors lean on these predictions to guide their investment decisions which often results in damaging investment outcomes.
In Bloomberg’s article — Here's (Almost) Everything Wall Street Expects in 2023, which detailed the forecasts for last year, the bulk of forecasts were gloomy and foreboding with many financial institutions predicting an economic downturn, and urging investors to choose bonds over equities.
Here is a sample of some of those forecasts:
We hope that these did not make you invest differently or change your investment allocations as evidence from 2023 showed that the vast majority of these forecasts were quite far from the mark. The S&P 500 index ended 2023 at 4,769.83, around 6% higher than the most optimistic forecast above. For perspective, global stocks represented by the ACWI (below) ended the year around +20% and global bonds were having a lacklustre year until the last two months and ended just above +5%.
Whilst we experienced our fair share of headline grabbing events in 2023, well seated investors with the right allocations would have benefited from the market recovery. This shows, despite the collective intelligence and computing power that goes into creating investment outlooks, that it is still notoriously difficult to predict what could happen in the future.
When we try to forecast or read predictions about what markets can do in the year ahead — which is a very short time frame — we have to understand that company and cashflow expectations rarely change significantly over that short period (unless beset with something unprecedented like a COVID-19 shutdown). What happens over the year ahead largely reflect changes in investor sentiment, which can fluctuate wildly from reality as it stems mainly from emotions.
So to accurately predict market performance in 2024, you will need to;
a) Identify known issues that will influence investor sentiment and accurately predict how investors react.
b) Identify unknown issues that will influence investor sentiment and accurately predict how investors react.
If you thought that identifying unknown issues would be difficult, you’d be surprised that predicting how investors react to news and events may be even more arduous. A simple example shown below on Apple’s share price movement to earnings announcements illustrates this point.
A positive earnings announcement is expected to drive stock prices up (or at least that is what your broker would tell you). For the range of earnings announcements below, Apple beat analyst estimates by a range of 2% to 18%. Logically this should lead to a positive stock performance over this period. However, you can see that there was no discernible or predictable trend. Positive announcements were met with both rising and declining share prices.
If you are looking at market outlooks as a how-to guide to invest for the year, think again. And what about our market outlook for 2024 and some of the events that can impact prices? Frankly, we have no idea.
But what we do know is that the long term expected returns from broadly diversified global equity markets are around 8% per annum, and broadly diversified global bond markets are around 4%. Any fluctuations on an annual basis above or below these ranges are part of the unexpected component which comes from investing.
So do we manage the unexpected bit? That’s where we come in to guide you through and walk with you when the world looks a little too uncertain for comfort. For more information, come and have a chat with us.
