“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” – John Kenneth Balbraith, economist

Hot chocolate. Laughing children. Crackling fireplace. My Mother’s ham.

These pleasures conjure fond holiday memories past and present.

It also means Wall Street forecasting season is upon us.

These credible-sounding predictions from smart individuals are supposed to make us feel better.

Howard Marks of Oaktree Capital calls it the illusion of knowledge. This is the belief that someone out there knows what happens next. Humans seek these predictions because they bring a sense of stability and comfort.

Why do I care so much about Wall Street predictions?

People make investment decisions based on these smart-sounding narratives. That’s fine if you know what you’re getting into. Most people don’t. We are here to shine a light on the perils of forecasting.

This is our sixth edition of Tis the Season for Wall Street Forecasting (see 2021 and 2020 versions).

Let’s review 2022 Wall Street predictions (made in the winter of 2021)…

The simple average of the remaining forecasts for the S&P 500 year ending 2022 is ~5,000, which equates to a ~7% price return. Wall Street is predicting that the S&P performs at its long-term average (which rarely happens).

The most pessimistic forecast (Morgan Stanley) calls for a 2022 price return of -6% for the S&P 500.

The most optimistic forecast (BMO & Wells Fargo) calls for a 2022 price return of 13% for the S&P 500.

*As of 12/7/2022, the S&P 500 was down ~16.5% year-to-date*

The best forecast (Morgan Stanley) only missed by 10%, but at least they had the direction correct (S&P loss for 2022).

The average 2022 Wall Street forecast was off by a whopping 23.5%!

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Let’s see what Wall Street is predicting for 2023 S&P 500 price targets (pessimistic to optimistic)…

As of this writing (12/7/22), the S&P 500 is trading at ~3,930.

Barclays: 3,675

Societe Generale: 3,800

Morgan Stanley: 3,900

UBS: 3,900

Citi: 3,900

BofA: 4,000

Goldman Sachs: 4,000

HSBC: 4,000

Credit Suisse: 4,050

RBC: 4,100

JPMorgan: 4,200

Jefferies: 4,200

BMO: 4,300

Wells Fargo: 4,300 to 4,500

Deutsche Bank: 4,500

Source: Yahoo! Finance

The simple average of the remaining forecasts for the S&P 500 year ending 2023 is ~4,060, which equates to a ~3.3% price return from current levels (not including dividends).

The most pessimistic forecast (Barclays) calls for a 2023 price return of -6% for the S&P 500.

The most optimistic forecast (Wells Fargo & Deutsche Bank) calls for a 2023 price return of 14.5% for the S&P 500.

Interestingly, one of the most optimistic forecasts for 2022 included the following language in their 2023 note…

“Our single and consistent message since early 2022 has been to play defense in portfolios.”

Wait, you published the most optimistic S&P 500 2022 price target, but cautioned investors to play defense?

The goalposts move with every ebb and flow of the market. It’s quite common for firms to change their price target throughout the year to “chase” market moves.

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It might seem like we are being harsh, but if we can save one investor from making a misguided decision, that’s a win.

Forecasting is a game. It preys on the human blind spot to find comfort in the illusion of knowledge.

Wall Street is simply giving the people what they want.

No one knows what happens next. If anyone says they do, run the other way.

Pure Portfolios is proud to be forecast-free since 2016.