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Predicting the future is intimidating, because it's impossible.
No one knows what the year ahead holds, but stock market strategists still must confidently give their takes about what's next anyway. Otherwise, people would look elsewhere for insights about the market landscape or economic backdrop when deciding where to invest.
But bravado and uncertainty can be a dangerous combination, as veteran investors can attest.
The consensus on Wall Street has been off to various extents in each of the last three years. Major investment firms didn't see a major downturn coming in 2022 and weren't upbeat enough ahead of 2023 or 2024. And the recession that some thought was a certainty never happened.
However, most of the market gurus whose annual predictions missed the mark have lived to tell the tale, even if their calls weren't close. There's a simple reason why: they've stayed close to the consensus thinking, and there's safety in numbers.
Strategists' biggest fear isn't really being wrong — it's being wrong in the wrong way.
Exhibit A is Marko Kolanovic, who was JPMorgan's chief strategist from the fall of 2021 until this past August. Kolanovic, who was arguably the most pessimistic voice on the Street, was let go after missing out on a multi-year market rally and consistently calling for a recession that has remained elusive. Unfortunately, the long-time bear was bullish heading into a disastrous 2022.
Although Kolanovic's recent calls may not be enviable, it's admirable in a sense. The market veteran had the courage to swim against the tide, even when it was dangerous and costly. And there's always a chance that history will view him kindly if he's eventually proven correct.
Going out on a limb can be fruitful, but it can also put those who are wrong out of a job. So while strategists should strive to be captivating and correct, many simply play it safe with their outlook. This groupthink in markets is almost impossible to miss, and it can lead investors astray.
To that point, half of the 20 investment firms tracked by Business Insider set their year-ahead S&P 500 price targets in the tight range of 6,400 to 6,600. Four others go from 6,666 to 6,840, and another four are between 7,000 and 7,100. The two outliers are the "mid-5,000s" and 4,450.
The consensus wisdom among strategists is that US stocks will log a solid, low-double-digit gain next year as the economy and corporate earnings continue to grow. That seems hard to dispute, even though there are valid concerns about valuations, inflation, and how far the rally has gone.
But recent history teaches that the outcome that seems most likely now probably won't play out.
When investors realize that even the smartest strategists don't really know what's ahead and might just be huddling near their peers for survival, they may throw their hands up in defeat. They may conclude that anything but passive investing in index funds is fruitless.
But just because the crowd is often wrong doesn't mean no one gets it right.
Bold strategists at Morgan Stanley correctly called for substantial losses before 2022, and the teams at Deutsche Bank, Oppenheimer, and BMO Capital Markets rightly predicted a significant rebound the year after. Deutsche Bank and BMO also were rewarded for bullish calls last year. In hindsight, each of those firms should have gone further with their bullish or bearish forecasts, but those who listened to their views were at least directionally correct.
If recent history repeats, the S&P 500 will end next year closer to the boldest calls than the consensus, though the opposite could always be true this time.
Studying past predictions and trying to map out their implications for the year ahead could make investors even more confused about what to do. Those in that camp may consider taking advice from 2024's top fund managers, though, of course, they might not repeat their performances.
