Grading 2015 Market Predictions
By: Sam Swift, CFA, CFP®
Happy New Year!
It’s kind of a shame that one of my favorite blog posts of the year always happens in the first week of the year, but here we are again. That’s right—it’s time to check in on the expert predictions for last year!
This year, I googled “experts predict stocks 2015” and clicked on the first article I found written at the beginning of last year. You can find it here, “4 experts make 11 predictions”. I’ve focused just on the market predictions, since we can’t profit off of economic predictions anyway. Let’s dive in with some interesting word salad from John Buckingham.
“The average stock will do better than the average index…
I had to think about whether or not this was mathematically possible. I guess it is, but I’m still not really sure what it means.
As soldiers have done better than the generals over the long run…
Is this a real phrase people say? I think I would argue the opposite.
…I expect a reversion to the mean. Total return: 10-12%, or even a little higher.”
Sorry, John. The S&P 500 returned a little over 1% for the year and the Dow was down a little over 2%.
Scott Wren: “Bullish, but not wildly bullish. Total return: 6%-10%”
Savita Sburamanian: “Total return: 8%–a decent amount of upside”
Ben Inker: “Total return: somewhere between -5% to 5%”
One out of four! Could have been worse, but they were saved by Inker “nailing” his prediction, albeit with the widest range of any of them. It should be pointed out that he also gave us a bonus prediction worth checking on:
“It’s hard to be excited about much, with the possible exception of emerging markets”
The MSCI Emerging Markets Index was down nearly 15% for the year. To be fair, he did throw the word “possible” in there so I could be generous and give him a pass. But I won’t. One for five.
2. INTEREST RATES
“Once the Fed gets going, the road is going to be bumpy…A modest rise, with the Fed tightening in September. Rates are going from low to less low…The Fed and central bankers worldwide are likely to remain accommodative for longer than people had thought — rates could actually go lower depending on the economy.”
This one is a bit tougher to grade as the Fed raised rates in December by a quarter point. Wren gets an incomplete for now, though it’s worth noting that the S&P 500 gained in the last two weeks of the year after rates rose. Subramanian’s guess missed the date. I admire Buckingham for going against the conventional wisdom and predicting lower rates, but alas that did not come to pass. I rule 0-2 amongst that bunch.
Inker: “Short rates have to start going up – unless the economy takes a turn for the worse.”
In this same spirit, I have a prediction for the NFL playoffs: The Arizona Cardinals will win the Super Bowl unless they lose. I’m tempted to give Inker a failing grade for trying to pass off the most generalized conventional wisdom around as a “prediction”, but we’ll just leave this ungraded. Total so far: 1-7.
7. LIKELIHOOD OF A CORRECTION
Buckingham: “It wouldn’t surprise me if we had a 10% correction at some point.”
The word “correction” implies the market was priced wrong, which is silly, but nevertheless the S&P 500 actually had about a 12% drop from July to August. They get a point for this one, but here’s where I also point out that the market experiences a drop of that magnitude on average about once per year, so it really shouldn’t surprise anyone. Not a terribly bold prediction. 2-8.
8. LARGE CAP VS. SMALL CAP
“Money will continue to flow to large caps…If forced to be in the U.S., we’d pick large caps. Small cap stocks are priced about as high as they have ever been. It’s hard to see how they’re going to grow their valuation. They’re maybe the closest thing to a bubble — though we’re not seeing that much excitement about them…Large caps are a great place to be.”
This was easily the best they did. Large caps did outperform small caps in the U.S. by about five percent. They certainly came up short of being a “great place to be” and in the international space, small caps were one of the few bright spots posting a nearly 10% return over large caps which were flat. In the spirit of fairness, however, I’ll count these as wins. 5-11.
9. FAVORED SECTORS
Buckingham: “Consumer discretionary, energy, industrials, materials, information technology.”
Consumer Discretionary was the best performing sector up nearly 9%. The other four, however, were amongst the worst sectors and underperformed the broad US index. Let’s be kind and just count that as one miss instead of four.
Wren: “Technology, industrials, consumer discretionary — sectors sensitive to a continuation of the recovery. A lot of emerging markets are very dependent on demand from the U.S. and Europe, and that isn’t quite there.”
Only got one out of three sectors correct here and we talked about how poorly emerging markets did. Another fail.
Inker: “One of the nice things about a fair bit of the emerging world is that it’s priced for some really bad things. Some are going to occur, but all of them probably won’t happen. So owning a diversified basket of emerging companies priced for really bad stuff should work out okay.”
This did not work out okay. Down 15%.
Subramanian: “Technology and industrials….Our fear with international is that there might be more pain to be felt in Europe; China looks fairly uncertain, and we’re a little less optimistic about emerging markets.”
Missed on both sector bets and we’ll call it a draw on the international and emerging calls (international basically paced the US markets). That’s a net fail. Sectors section sucked for these prognosticators. 0 for 4 brings the total to 5 for 15.
10. ENERGY SECTOR
“…oil to be around $90 a barrel…oil could dip as low as $50…makes a lot more sense in the $75 range…we like Ensco”
Oil finished the year around $37 per barrel. Ensco’s stock price was nearly cut in half. Oh-fer on energy and 5 for 19 overall. That’s a decent average for a light-hitting second baseman, but it’s probably not going to make you rich.
11. ADVICE: FOCUS ON LONG-TERM INVESTING
“Maybe the real contrarian way to invest is taking a long view with a holding period that isn’t minutes but years…There will always be some new boogey man. Try not to overreact to the short term…focus on the long term…[don’t] open your statements!”
Who the heck are these guys?! I would like to introduce these well-reasoned fellows to those from the previous paragraphs! In fact, let’s end on a high note and just roll that very last section of advice into 2016. We’ll throw in the index card I post each year and that’s all the investing advice you really need.
Here’s to a healthy, happy, prosperous 2016!