VTS Community,

In looking over a list of S&P 500 forward return predictions for 2018, like every year it just made me roll my eyes at how unsurprising this is.  We see this almost every year.  Safe, clustered predictions around a number that rarely actually materializes:

So the S&P 500 ended 2017 at 2673.61.  That means these are the predictions for 2018:

Highest:  12.2%

Lowest:  -0.8%

Median:  5.66%

None of the major banks are predicting a meaningfully down year?  We’re 9 years into the 2nd longest bull market in history, easy money is over and the Fed is tightening and reducing their balance sheet, and the S&P 500 has negative years 33% of the time.  Yet only one bank is predicting a -1% decline?

On the flip side, the long term median annual gain for the S&P 500 is 13.5%.  This makes sense because bull market years are more numerous than bear market years, yet not a single bank in that list is predicting even an average year.  Again really?  Tax cuts, full employment, consumer confidence near all time highs, yet none are predicting an average or above average year?

Here’s the S&P 500 annual return distribution since 1928:

Statistically speaking, it’s quite likely that every bank on that list is going to be wrong.

 

This isn’t actually that surprising, the financial industry has been this way for years and it goes beyond just clustered forward predictions that parrot the bank next to them.  It works its way into the way they invest as well.

Homogenized investment pie charts based on investing techniques that don’t achieve any significant growth for clients.  There was a time when big banks and hedge funds were willing to step out and be different.  There was a time when competition mattered.

If those predictions are based on statistics and data mining, you’d think at least one or two of them would be on the high side and one or two would be on the low side.  There’s plenty of ways an analyst could come up with a prediction on either side.  Yet they don’t.

How refreshing would it be to see some actual range to these estimates?  You know, something that mirrors all investors and all people in the world?  Or at the very least, the actual historical data?

It’s to the point where predictions by bank analysts are the least meaningful.  I’d rather poll random people on the street than banks.

 

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