Market Commentary: Winter 2024 - ‘Tis the Season for Forecasts

Jan 26, 2024 Willow Creek Wealth Management Posted in Articles, In the News, Market Commentary

Additionally published in North Bay Business Journal

Towards the end of each year, it is common to see financial forecasts being issued for the year ahead. Market analysts and financial pundits put forth estimates of where the market will end the year and how the economy will perform. They will give inflation targets and notes on where interest rates will head. These are often well-researched and well-reasoned opinions, though some of them can be quite breathless in their prognostications. In early 2023 the projections sounded like “inflation will continue unabated, interest rates will go higher and stay higher for longer” and “the economy will spiral into a recession!” All of it is designed to create the impression that the “financial prognosticators” possess wit, wisdom, and the ability to make you a smart and successful investor, if you follow their recommendations. To us, it is generally a lot of big-sounding words and hopeless guessing.

The Impossibility of Forecasting the Future

The problem is that the future always holds surprises – just think how hard it is to forecast what will happen in any given year. Who knew with any degree of certainty that there would be a global pandemic in early 2020? Or that the economy would miraculously rebound that same summer? Who predicted the timing of the Russian invasion of Ukraine and its resulting impact to global commodities markets? Or the 2023 banking crisis? All this uncertainty leads to the experts getting it wrong more often than not. For example, in a survey by the Financial Times at the end of 2022, over 85% of economists predicted the US would be in a recession by the end of 2023 (for the record, the US economy is not in a recession now and did not experience one at any time throughout the year). According to Bloomberg, the consensus outlook for the S&P 500 Index was for it to increase by just 6.2% over the course of the year (not even close – it closed the year up by a whopping 26%). And that was not just one bad year for the experts. Looking back over the past 20 years of forecasts for the S&P 500 Index, the disparity between forecast and reality is gaping. Market experts tracked by Bloomberg were off by an average of 12.9 percentage points per year.

What’s in Store for ’24?

So, what are the experts forecasting for 2024? The consensus view is that the economic challenges of the past few years are almost behind us: inflation has been tamed, the economy continues along at a solid pace, and unemployment remains low. Having said that, there are still concerns over the possibility of a recession in 2024. There are also concerns about the potential impact of the upcoming budget fight in Congress as well as a divisive and contentious Presidential election season. As of December 19th, Bloomberg reports that the consensus forecast for the S&P 500 Index is to end 2024 at about the same level as it is now. This prediction may change now that the market has had a strong end to the year; market analysts are famous for being subject to “recency bias” (i.e., the tendency to think that what is happening now will continue on into the future).

You Don’t Need a Crystal Ball

Markets are robust, they adapt to change and can handle a great deal of stress. Do not let your concerns about what might impact the market over the short term according to one group of so-called experts make you change how you invest for the long term. Having said all of that, there is one forecast we are comfortable making: If you stick with a long-term, diversified portfolio, you will have the best chance of experiencing positive returns commensurate with the risk taken. Though our forecast for success won’t grab any news headlines, it happens to be the best predictor of future outcomes we know! Our best advice – avoid the investment “news forecasts,” stick to your investment plan, and lean on us for support and guidance when needed.

Market Update - Winter 2024

Get up to date with our Portfolio Manager, Griffin Sheehy, as he provides his insights in our latest video.

After a challenging third quarter, all the major asset classes we follow rebounded and finished the year with strong growth. This came as a surprise to many market observers and shows how challenging it can be to predict what direction the market will take in the short term.