If you were reading Daily Insights back in January (and I hope you were), I started the year off right with the first ever Official Acropolis 2014 S&P 500 Market Forecast.
In case you missed it, here’s what I said: ‘We forecast with a 90 percent degree of confidence that the S&P 500 will close the year at 2,033, plus or minus 450 points.’
So far, we’re nailing it!
Just kidding – the idea behind the forecast is that the range of outcomes is so wide that the forecast is essentially useless. And that 2033 just took the closing price from the last trading day of 2013 and added 10 percent, the long term average gain.
If markets went outside of the already super-wide band that we provided, we can fall back on the fact that we only had a 90 percent degree of confidence – there’s a 10 percent chance the results would be outside of the band.
The idea behind the Official Forecast was to point out that A) forecasts are useless and B) markets are volatile and anything can happen.
An article in the Wall Street Journal (click here for article, although a subscription may be required) reminded me that forecasts are generally a waste of time.
The article talks about how many strategists started the year with a cautious view, thinking that stocks would suffer as the Federal Reserve pulled back their bond-buying program, profit growth was slowing and valuations were high.
The WSJ cited Birinyi Associates, who found that the average forecast for the S&P 500 was a gain of 5.3 percent. Of course, we’ve still got five months left to go and anything can still happen (as the bands in our Official Forecast indicate).
Not surprisingly, a number of firms, like Citigroup and Goldman Sachs, are upping their forecasts. Goldman Sachs said that the market would rise just 2.8 percent this year and now things that it will rise 11 percent. The market is already up eight percent, so his forecast of a three percent is still right if you ignore the first seven months of returns.
I like this idea of changing forecasts, but why do it now? Why not wait until December 29th and put in an update then. I’ll be more than willing to update the Official Forecast at the last minute and I will even be willing to drop the bands to something more reasonable, like plus or minus five percent or something like that.