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  • Market Commentary

Tis the Season... For Market Forecasts + 12.11.24

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Josh Jenkins, CFA, Chief Investment Officer, Principal
December 11, 2024
Tis the Season... For Market Forecasts + 12.11.24

As we near the finish line for 2024 the number of notable economic data releases and other market-moving events will wane. With airtime to fill, the financial media will increasingly look to 2025 for content. A tried-and-true approach to accomplish this is to interview research analysts, economists, and market strategists about what they think will happen in the stock market during the coming year. 

I don’t blame the media for pumping out this type of content, there is substantial demand for it. Investors hate uncertainty. A market forecast provides a roadmap for the coming journey. Even if the forecast points to a tough road ahead, there is comfort and a sense of control when people believe they know how things will unfold. To actually add value, however, a forecast must accurately reflect how the future will unfold. So, are market forecasts accurate?

The chart below, recently published by Avantis Investors, can help to answer the question. It illustrates the consensus forecast for the S&P 500 relative to the actual return each year going back to 2018. The result of the comparison does not inspire confidence. The average gap between the forecast return and the actual return has been a whopping 17.9% over the last six years!

1-Dec-11-2024-02-21-52-0288-PM

Data from 1/1/2018 - 11/30/2024. Sources: Emily McCormick, “What Wall Street Strategists Forecast for the S&P 500 in 2019,” Yahoo Finance, December 31, 2018; Jeff Sommer, “Clueless About 2020, Wall Street Forecasters Are at It Again for 2021,” New York Times, December 18, 2020; Jeff Sommer, “Forget Stock Predictions for Next Year. Focus on the Next Decade,” New York Times, December 16, 2022; Senad Karaahmetovic, “Top Wall Street Strategists Give Their S&P 500 Forecasts for 2023,” Investing.com, December 27, 2022; and Tom Aspray, “Should You Worry That Strategists Keep Raising Their S&P 500 Targets?” Forbes, October 20, 2024. Past performance is no guarantee of future results.

YTD 2024 ranks as one of the least accurate periods. Through November, the consensus forecast for this year missed the mark by a laughable 24.3%. Had these market strategists abandoned their attempts at forecasting and simply used the long-term historical return for the S&P 500 of 10.1% instead, they would have improved the overall accuracy of their estimates. The average gap between forecast return and actual return would have declined from 17.9% to 16.1%!

While the consensus estimates have widely missed the mark, there is typically a small handful that gets a market call correct each year. This is not surprising given the large number of individuals attempting a guess. The problem is that there is no consistency from one year to the next for who is getting the call correct. Therefore, you can’t tell whose view you should pay attention to. 

Despite their abysmal track record, the individuals making these forecasts are intelligent people. Many of them work for the big Wall Street banks, investment managers, and research firms. They are highly educated, highly paid, and have tremendous resources at their disposal. They are extremely knowledgeable about the markets and the economy. They (usually) make sound, logical arguments supported by good data and analysis. Importantly, they are good storytellers, painting visions of the future that sound highly plausible. It’s not surprising that their forecasts continue to garner so much attention. It may be fiction, but it can still be entertaining.

At the end of the day, forecasting is doomed to fail because the market and the economy are too large and too complex to accurately model. Nobody interviewed by CNBC, Bloomberg, The Wall Street Journal, or any other media outlet in 2024 knows what is going to happen in 2025. There’s nothing wrong with consuming that content, just don’t let it influence your investment decisions. 


Week in Review

  • The November Jobs report released last Friday (12/6) showed that the US added 227,000 jobs during the month, a large rebound from the 36,000 increase seen in October. While the month-over-month increase seems staggering, the poor October Jobs report was largely due to temporary factors from the Boeing Strike and Hurricane Milton. The report also released the latest unemployment rate which crept up to 4.2% from 4.1% the month prior.
  • The latest ISM (Institute for Supply Management) manufacturing PMI, a gauge for economic activity in the manufacturing sector, rose to 48.4% in November, matching the index's five-month high. New orders also turned positive for the first time since this spring, sparking hopes for a manufacturing rebound in 2025. 
  • According to FactSet, 99% of the S&P 500 reported Q3 results as of last Friday, December 6th. The earnings growth rate for the quarter ended at 5.9% year-over-year, which marks the fifth straight quarter of year-over-year earnings growth. The communications services and healthcare sectors were the biggest contributors to earnings growth for the quarter at 23.2% and 13.6% year-over-year growth respectively. The Materials and Energy sectors were the biggest laggards this quarter, with earnings decreasing by -11.4% and -24.7%, respectively.

Hot Reads

Markets 

  • Hiring Bounced Back With 227,000 Jobs Added Last Month (WSJ)
  • The Fed is on Course to Cut Interest Rates in December, But What Happens Next is Anyone’s Guess (CNBC)
  • Is This Wildly Overvalued Stock Market Doomed? Yes, but Maybe Not Yet (WSJ)

Investing 

  • The 4 Types of Investment Mistakes (Ben Carlson)
  • How to Find and Capitalize on Asset-Pricing Anomalies (Larry Swedroe)
  • Trading Arguments (Adam Grossman)

 Other 

  • Top 10 Worst NFL Weather Games (YouTube)
  • Notre Dame Rebuilt, Reverently Restored 5 Years After World Watched French Cathedral Burn – 60 Minutes (YouTube)
  • German Christmas Markets Serve the BEST Food in Europe! (YouTube)

Markets at a Glance

2-Dec-11-2024-02-21-52-1050-PM

3-Dec-11-2024-02-21-52-0927-PM

4-Dec-11-2024-02-21-52-0422-PM

Source: Morningstar Direct.

5-Dec-11-2024-02-21-52-0551-PM

Source: Morningstar Direct.

6-Dec-11-2024-02-21-52-0571-PM

Source: Treasury.gov

7-Dec-11-2024-02-21-52-0451-PM

Source: Treasury.gov

8-Dec-11-2024-02-21-52-0605-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

9-Dec-11-2024-02-21-52-0524-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)


Economic Calendar

10-Dec-11-2024-02-21-52-0858-PM
11-Dec-11-2024-02-21-52-0801-PM

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION

  • Competition, Achiever, Relator, Analytical, Ideation

Josh Jenkins, CFA

Chief Investment Officer, Principal

Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations. 

Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets. 

 

At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making. 

 

Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf. 

402.763.2967

jjenkins@lutz.us

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