Be skeptical of stock market
predictions for the coming year

Key takeaways:

• Predicting where the stock market will be a year from now with any accuracy is a challenging, if not impossible, endeavor.
• Wall Street stock strategists have underestimated S&P 500^® Index returns in 13 of the past 16 years, missing year-end price targets on average by approximately 10%.

December 18, 2024 – It's time for the annual unwrapping of market forecasts for the year ahead from Wall Street's top stock strategists. However, when comparing past forecasts to actual year-end performance, these predictions often appear less clairvoyant and more reflective of consensus expectations.

Investors should view these year-ahead projections with a healthy dose of skepticism, understanding that accurately predicting the stock market's position a year from now is a challenging, if not impossible, task.

Investors must remember forecasting the stock market's performance a year from now is an exceedingly challenging endeavor, a truth that holds equally for strategists. Take, for example, the average strategists' year-ahead price target for 2023: the consensus called for the S&P 500 to deliver a return of less than ten percent as investors were reeling from the brutal bear market of 2022. What occurred? Well, 2023 turned out to be a blockbuster year, boasting a 27% return for the S&P 500 Index.

As investors turn the page to 2025, S&P 500 year-end price targets range from 6,300 to 7,100, suggesting an average gain of roughly 10% for the year. However, the accompanying chart shows that strategists have underestimated the S&P 500's returns in 13 of the past 16 years, with the Index outperforming the average year-end price target by approximately 10%.

How should investors approach year-end price targets? First, while research, technical analysis, and market narratives can be enlightening, they are largely based on assumptions about economic conditions, earnings growth, and market sentiment. These factors are inherently uncertain and often change as the year progresses. Second, price targets should not be viewed as static outcomes with preordained certainty. Instead, they're better seen to understand the collective insights of Wall Street analysts. This is why the best strategy for investors is not to fixate on year-end targets, but to tailor an investment strategy aligned with their individual financial goals.