Your best stock-market advice for 2025? Pay no attention to stock-market predictions, which are frequently - and comically - wrong.
It's that time of the year when financial-market analysts offer their expert outlook for stocks.
Don't listen to them. The truth is that forecasts are no more accurate than a coin flip. In fact, as many contrarians like to point out, these forecasts may be even less accurate than what you'd expect on the assumption of randomness.
I recently spent the better part of a day reading through dozens of year-ahead forecasts made in December 2023 about what 2024 would bring for investors, and I came away with new appreciation for the phrase credited to Niels Bohr, the Nobel laureate in physics: "Prediction is very difficult, especially if it's about the future."
Consider the December 2023 forecasts from some large and prominent Wall Street firms about where the S&P 500 SPX would be trading at the end of 2024. I'm not mentioning the firms' names, because my point is not to shame individual analysts but to point out the futility of stock-market forecasting:
-- "We are forecasting the S&P 500 to end 2024 at 4,257."
-- "The S&P 500 would be fairly valued in the 4,750 range by end of 2024."
The reason that analysts aren't deterred by being wrong is that often their primary goal in issuing year-ahead forecasts is to get attention. Being right is nice, but not necessary.
Consider a set of "outrageous predictions" for 2025 issued earlier this month by Saxo Bank, one of which is that Nvidia's (NVDA) market valuation next year will grow to be double that of Apple (AAPL). In making this and other claims, the bank acknowledged that while it's highly unlikely its predictions will come true, it "could just happen." The bank added that the motivation behind its predictions is to "spark discussions."
As a publicity stunt, it worked. Soon after Saxo released its "outrageous" prediction about Nvidia and Apple, it was a banner headline on several financial websites, including MarketWatch.
Pity the stock-market analyst who, instead of making outrageous predictions, carefully reviews the dozens of factors that inevitably are on each side of every major investment issue and issues a responsibly hedged assessment of the probabilities. His analyses will never be splashed across a web page.
'The illusion of knowledge'
It's not an accident that analysts have dismal prediction records, according to Howard Marks, co-founder and co-chairman of Oaktree Capital Management. Two years ago, in an essay entitled "The Illusion of Knowledge" - to me, one of the best discussions of this subject - Marks laid out why successful economic forecasting is next to impossible. I highly recommend that you read it.
One of Marks's more compelling arguments is the dismal performance of hedge funds whose strategies are based on macroeconomic forecasting - so-called macro hedge funds. Hedge-fund managers are some of the smartest people on Wall Street, and if macroeconomic forecasting were possible then these managers presumably would have the track records to show it.
But as you can see from the chart above, the average macro hedge fund performs less well than hedge funds that don't rely on macroeconomic forecasting. And on average, those other hedge funds have themselves seriously lagged the S&P 500.
As Marks wrote when reviewing similar performance data through 2022: "The average hedge fund woefully underperformed the S&P 500 in the period under study, and the average macro fund did considerably worse. ... Given that investors continue to entrust roughly $4.5 trillion of capital to hedge funds, they must deliver some benefit other than returns, but it's not obvious what that could be. This seems to be especially true for the macro funds."
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
More: This bank's outrageous predictions include the dollar tanking and Nvidia becoming twice the size of Apple
Plus: All of Wall Street expects stocks to rise - and that view may be too cautious
-Mark Hulbert
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