Are 2017 Financial Forecasts For Real?
Financial Forecasts – Myth Or Reality?
During a recent trip from San Francisco to Ohio, I spent several hours indulging in the Wall Street Journal, cover-to-cover. Fascinated by their second quarter Markets Review & Outlook Section on July 3, 2017, I fervently read the predictions made by pros compared with reality. Learn whether the financial forecasts hit the mark or veered off course.
I assumed that at least one prediction for the markets for 2017 might have materialized. Yet, out of 8 economic predictions, ranging from U.S. stock indexes to inflation, the experts were all wrong.
Here’s why it matters.
The experts, those with schooling, experience and credibility share their financial predictions for the future. Next, regular folks go on to make economic, investing and financial decisions based on these predictions. Yet, what happens when most, if not all of the WSJ predictions don’t materialize?Click here to check out all of our bond investing articles.
Expert Economic Predictions for 2017
Stock market performance will be tepid.
According to Birinyl Associate, Wall Street strategists expected the S&P 500 to close out 2017 at 2,362, up 5.5%. Although it’s only mid-year, stocks rallied with their best performance since 2013, set 24 new closing records and is up 8.2%.
WalletHub.com joined in the stock market prediction game with a year-end S&P 500 prediction of 2,288 or a 2017 gain of 0.75%. On July 21st, the S&P 500 closed at 2,472, approximately 200 points above the prediction.
Finally, a litany of financial experts was cited on zerohedge.com that we’re due for a major stock market collapse this year. In fact, economist Andrew Smithers claims that U.S. stocks are 80% overvalued, in line with the horrendous market crashes following 1929 and 1999.
10 Year Treasury bond yields will trend upwards.
Given the Fed’s expected rate tightening along with Trump’s initiatives, investors, myself included, were confident that the 10-year treasury yield would trend higher. I’m still perplexed that after hitting a high of 2.63% on March 16, 2017, the July 21st yield has dropped to 2.15% according to macrotrends.net. Compare that with 2007 to 2016 average of 4.58%.
The WSJ listed other economic predictions, all of which turned out to be wrong, at this point.
So, what’s going on? All the expert predictions can’t be wrong – or can they?
Should You Follow the Experts Financial Wisdom?
It’s fun and entertaining to imagine what the future holds for the economy and your money. It gives you the illusion of control and the idea that you can manage the future. Some experts brag that they predicted this or that event. Although, typically their reports of brilliant predictions are “after the fact”. And if you make enough predictions, occasionally you might be right.
So, how should you evaluate the financial experts’ predictions?
Here’s what I do.
When markets are richly valued with price earnings ratios hovering near their highest levels, I save up some extra cash. That way, when stock market prices return to their historical levels or lower, I can swoop up some bargains.
The risk of this approach is that you don’t know how long a bull market will continue, or when prices will come back to earth. So, you might be missing out on potential profits.
Many experts suggest:
Ignore stock market and economic predictions.
Choose an asset allocation for your investments that fits with your age, time horizon and risk tolerance.
Diversify your investments to include stocks, bonds, real estate and other asset classes as preferred.
Rebalance that allocation periodically, as percentages drift from your preferred allocations.
Be patient, and let the power of compounding work its magic.
Final Thoughts on Expert Financial Forecasts & Predictions
If you’re many years from retirement and expect to work for decades into the future, the near term economic financial forecasts shouldn’t matter. Your investments should be in line with your risk comfort level without regard to short term fluctuations. If you’re not a DIY investor, you might use a robo-advisor or automated investment platform and put your investing on auto-pilot. That way, you’re protected from fiddling with your accounts with excessive buying when prices are high and selling after a market drop.
Whenever you read an ‘expert’ prediction for your money, spend a moment to think for yourself. Hesitate before acting on a crystal ball prediction from a pundit.
This article originally appeared on TalkMarkets.