As we near the finish line for 2025, investors are once again inundated with market forecasts. In this annual tradition, Wall Street strategists, economists, and investment firms roll out their best guesses for where stocks, interest rates, and the economy are headed next year. I don’t blame them for pumping out this type of content, as there is substantial demand for it. Investors hate uncertainty, and 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 the future. So, are market forecasts accurate?

The short answer is: not very. The chart below, recently published by Avantis Investors, provides the evidence. It illustrates the consensus forecast for the S&P 500’s annual return relative to its actual return each year since 2018. The comparison's results do not inspire confidence. The average gap between the forecast return and the actual return has been a whopping 16.3% per year over the last seven years! That’s not a rounding error. It’s a meaningful gap, and one that highlights just how difficult it is to predict markets, even for experienced professionals with access to vast resources.

Source: Avantis Investors. Data from 1/1/2018 - 11/30/2025. 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; 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.

It would be easy to give forecasters credit for 2025. After all, the 12.2% gain implied by the initial group forecast came reasonably close to the mark. That apparent success comes with a big asterisk, however.

As the year unfolded, many forecasters failed to stick with their own estimates. In the wake of the Liberation Day tariff announcement in early April, rising market anxiety led to a sharp round of downward revisions. As illustrated in the chart below, optimism gave way to pessimism. Nearly half of the group came to expect the S&P 500 to finish the year with a loss, with the most bearish forecast calling for a -12% decline. Even the most optimistic revised estimate of 9% fell well short of the original 12.2% forecast.

Source: Avantis Investors. Data as of 11/28/2025. Anthony Di Pizio, “Wall Street Analysts Are Slashing Their S&P Targets for 2025. Here’s What You Should Do, Based on Decades of History,” Motley Fool, May 9, 2025.

Importantly, these revisions did not reflect new insight into the future so much as a reaction to recent market movement. When the market stumbled, conviction disappeared. Later, as the market rebounded sharply from the April lows, forecasters once again revised their estimates higher. While the starting and ending forecasts may ultimately land in the same neighborhood, I question the value of a forecast that begins with a reasonable estimate, abandons it during periods of stress, and then moves back higher only after prices have already recovered.

The danger for investors isn’t that forecasts change, but that those revisions often mirror the same fear-driven impulses that tempt investors to make poor timing decisions themselves. A forecast that moves with the market may feel responsive, but it offers little guidance to someone trying to make long-term investment decisions.

Despite their poor track record, the individuals making these forecasts are intelligent people. Many work for major Wall Street banks, investment managers, and research firms. They are highly educated, well-resourced, and deeply knowledgeable about the markets and the economy. Their arguments are usually logical and supported by credible data. And they are effective storytellers, painting visions of the future that sound plausible and compelling. It’s not surprising their forecasts continue to attract attention. They may not be reliable, but they 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 model with precision. Nobody interviewed by CNBC, Bloomberg, The Wall Street Journal, or any other media outlet in 2025 knows what is going to happen in 2026. There’s nothing wrong with consuming that content, just don’t let it influence your investment decisions. 

Week in Review

• The Federal Reserve cut interest rates by 25 basis points to a target range of 3.50% - 3.75% at its December 10 meeting. This marks the third consecutive FOMC meeting with a quarter-point reduction. Alongside the decision, the Fed released updated economic projections in its Summary of Economic Projections (SEP), including the closely watched “dot plot.” The median projection for 2026 points to an additional 25 basis points of rate cuts, though the forecasts reveal a notable divergence of views among policymakers.
• The Labor Department released the delayed November 2025 nonfarm payroll report on December 16, showing that employers added 64,000 jobs during the month. This exceeded expectations of 45,000 and marked a sharp rebound from October, when payrolls declined by 105,000. The unemployment rate edged up to 4.6% in November, the highest level seen since September 2021.
• With Q3 earnings complete and all of the S&P 500 companies having reported results, FactSet released the final Q3 2025 earnings growth rate of 13.6%. Information technology, financials, and utilities sectors contributed the most to Q3 earnings, with year-over-year growth rates of 29.2%, 23.5%, and 23% respectively. FactSet also released its initial estimate for Q4 2025 year-over-year earnings growth for the S&P 500 at 8.1%, which would mark the tenth consecutive quarter of earnings growth for the index.
  

Hot Reads

Markets 

• Payrolls Rose by 64,000 in November after falling by 105,000 in October, Delayed Jobs Numbers Show (CNBC)
• Fed Cuts Rates Again, Signals It May Be Done For Now (WSJ)
• Fed Officials Spar Over Whether Rate Cuts Risk Credibility on Inflation (WSJ)
  

Investing 

• Do You Really Know What’s Inside Your 401(k)? (Intelligent Investor)
• The Best Hedge Against (Ben Carlson)
• FOMO Can Lead to Lower Returns. Don’t Fall For It (Larry Swedroe)

 Other 

• Why Charles Schwab CEO is Worried About Young Investors – WSJ (YouTube)
• Can Saunas Make You Live Longer? – TED-Ed (YouTube)
• 3 Game Theory Tactics, Explained (YouTube)
  

Markets at a Glance

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

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

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

Economic Calendar

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION