A quarter-century of predictions show that forecasters usually play it safe
Wall Street’s biggest firms have issued their latest forecasts for the S&P 500 in 2025. They sound a lot like the predictions they made over the last few years. And the years before that.
If hearing the brokerages’ average 2025 forecast of a 9.1% gain is giving you a sense of déjà vu, you’re onto something. Over the past 25 years, 53% of the 376 firm forecasts surveyed by Bloomberg clustered between 0% and 10%.
This might be understandable if annual market returns were scattered in the same way. In reality, they’re far more volatile:
While a handful of forecasters stick their necks out each year with predictions that stray far from the mean consensus, it’s relatively rare. But even when more did than usual in recent years, the market swings were still larger than predicted. In seven of the past eight years, the market’s returns were outside the range of all forecasts compiled, often collectively underestimating the index’s return potential.
In fact, a similar pattern holds not just over the forecasting period, but over the prior century as well. Large gains and losses were more frequent than single-digit gains, which occurred just 14 times in 97 years.
Naturally, this disparity between forecasts and the historical record must lead to some unflattering results. Strategists on average missed the mark by more than 15 percentage points, though some were better than others. Still, even the “best” firm was off by an average of 10 points:
These errors tend to fall on the side of being too pessimistic, as 57% of all forecasts analyzed were less than the actual market returns, while 43% proved to be too high.
Professional forecasters prefer the 0 to 10% range because it aligns with the historical average, says Elliott Appel, a financial planner in Madison, WI. Clients may tolerate a mid-range miss more than an extreme one. “You look silly if you forecast 30% and the market is down 20%. If you forecast 10% and the market is down 20%, you are closer, and it’s easier to make an excuse for why the market went down. You can tell a story that sounds good that preserves your reputation.”
So what should average investors do with any given stock-market forecast they come across? Nothing, according to Elliott. “They should treat it as entertainment, much like you would a sports match.”
Methodology
Bloomberg analyzed year-ahead forecasts for the S&P 500 Index by major Wall Street firms for the years 2000 through 2024. Forecasts are regularly submitted to Bloomberg’s survey throughout the year, roughly once per month, for the index’s price level at the end of that year or following year.
This analysis used the latest forecast in December of each year for end the following calendar year. Firms’ forecasts of the index’s price level were converted to equivalent annual growth rates for the following year based on the date the December forecast was published. Forecasts for the end of 2000 and 2006 were made in the first week of January of those years.
Seventeen of the 376 forecasts submitted were 12-month forecasts instead of year-end forecasts for the following year. These were converted to year-end forecasts using the same implied annual growth rate submitted for the 12-month period. Two of the forecasts submitted were a range for the index price level; in these cases, the midpoint of the range was used.
Written by: Alexander McIntyre and Mathieu Benhamou — With assistance from Lu Wang @Bloomberg
The post “Wall Street’s Market Forecasts Are Out for 2025 — Be Dubious” first appeared on Bloomberg