 We’re coming up on the time of year again when everyone loves to put out their predictions on what the market will do in the upcoming year. Lets face it though- forecasting is a form of marketing. Plain and simple. This is what creates headlines and attracts eyeballs. At the start of 2023, 85% of economists polled by the Financial Times predicted a recession within a year. The so called ‘experts’ at Goldman Sachs predicted the market to be flat in 2023.  https://www.goldmansachs.com/intelligence/pages/us-stocks-are-forecast-to-have-less-pain-but-no-gain-in-2023.html The market however just finished the year +25%. The media, investors, and the general public are naturally drawn to forecasts that make compelling claims about the future of the market. By presenting a confident outlook on the stock market, these investment firms aim to convince investors that their expertise can lead to profitable outcomes. However, these forecasts have often times been far from accurate. Heading into 2022, Goldman predicted the SP500 to be up +9%.  https://www.reuters.com/business/goldman-sachs-forecasts-modest-rise-sp-500-index-2022-2021-11-16/ Yet, we all know what happened in ’22…. The market was down -19%. The point of this is not to call out Goldman for how wrong they were, but to prove how difficult it is to make predictions about the future, especially as it relates to short-term movements in the stock market. When stocks fall, our emotions make us think they will fall even further. And when stocks rise, our emotions make us believe they are going to rise even more. If you’re an investor, you should be thinking out decades or at least multiple years. This is why it is better to plan then to predict. PLAN - DON'T PREDICT Plan for the unpredictable. Plan for what can happen, rather than try to predict what will happen. Portfolios constructed properly are built to withstand times of volatility The process of setting an asset allocation is to balance your time horizon and risks as an investor. You don’t have one asset allocation for a bull market, one asset for a bear market, and one for inflation/ deflation and rising rates, falling rates. You should be looking at the long term returns for different asset classes. It is important to have a diversified investment strategy that acknowledges the unpredictable nature of financial markets. If you take a look back at the post from last year How Do Markets React to Pullbacks?, it referenced how markets have historically responded to pullbacks exceeding -20% (as we experienced in '22) . The post, from the end of '22, showed that the average 1 year return after such a pullback was +21%. While it was hinting at that it was a great buying opportunity, it was not forecasting/ predicting what the market would do. It was not a foregone conclusion that stocks would rally this year as much as they have. It could have gotten worse if inflation stayed high or we went into a recession ... or if some other risk came out of left field. Regardless of the outcome, this is a good lesson in the power of staying the course as an investor. If you’re an investor, you should be thinking out decades or at least multiple years. Staying the course means going against your own emotions at times. Unfortunately, doing nothing is hard work because markets are constantly tempting you to make changes to your portfolio. Smart investors know its hard to predict the upcoming market conditions. The key is to prepare and plan for a wide range of outcomes so that short-term market changes don’t impact your decisions. If you're interested to see what they're forecasting for 2024:  https://www.reuters.com/business/finance/goldman-sachs-sees-sp-500-hitting-5100-2024-boosting-forecast-2023-12-18/
Take it with a grain of salt... as we know markets are very unpredictable.
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Regan Flaherty
CFP®, CPWA®, AAMS®
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