In fact, many predictions about Wall
Street have misread the market’s direction.
Trying to determine how Wall Street will behave next week, next month,
or next year is difficult. Some feel it is impossible. To predict the near-term
direction of the market, you may also need to predict upcoming earnings
seasons, central bank policy moves, and the direction of both the domestic and
global economy. You might as well forecast the future of the world.
That is not to say forecasting is useless. You could even argue that it
is a necessity. Every month, economists are polled by various news outlets that
publish their median forecasts for hiring, inflation, personal spending, and
other economic indicators. Those median forecasts are often close to the mark,
and sometimes exactly right.
Figuring out what lies ahead for equities, however, is often a guessing
game. Looking back, some very bold predictions have been made for the market –
some way off the mark.
Dow 30,000! More than a decade ago, a few
analysts boldly forecast that the Dow Jones Industrial Average would climb to
astonishing heights – heights the index has yet to reach today.
The
first was investment manager Harry Dent, who, to his credit, had written a book
called Great Boom Ahead predicting an
amazing run for both the economy and the market starting in the mid-1990s.
(Indeed, the S&P 500 averaged a yearly gain of almost 29% during 1995-99.)
Dent’s 1999 bestseller, The Roaring
2000s, posited that the Dow would top 30,000, perhaps 35,000 in the near
future as maturing baby boomers poured money into equities. He was wrong. What
happened instead was the so-called “lost decade,” in which the broad market
basically did not advance. As for the Dow 30, it ended the 2000s at 11,497.12.1,2
As a money manager, Robert Zuccaro had been part of a team that had
realized triple-digit annual returns in the late 1990s. He put out a book soon
afterward called Dow 30,000 by 2008: Why
It’s Different This Time. (As the market cratered in 2008, you might say
his timing was bad.) Analysts James K. Glassman and Kevin A. Hassett authored a
volume called Dow 36,000: The New
Strategy for Profiting from the Coming Rise in the Stock Market. It came
out in 2000, and also proved overly optimistic.2,3
Dow 3,300! Harry Dent changed his outlook over time. In 2011, he
told the Tampa Bay Times that the
blue chips would plunge to that dismal level by 2014 or earlier. The Dow
finished 2014 at 17,823.07. For the record, Dent now sees a “bubble collapse”
starting in 2016 or 2017, soon breeding “widespread civil unrest” in America.2,4
Sell your shares now! In “Bearish on America,” a 1993 Forbes cover story, Morgan Stanley analyst Barton Biggs urged
investors to dump their domestic shares en
masse in light of the economic policies favored by a new presidential
administration. The compound return of the S&P 500 over the next seven
years: 18.5%.5
The market is done, no one believes in
it! Perhaps the most famous doomsday
call of all time occurred in 1979 when Business
Week published a cover story entitled “The Death of Equities.” Wall Street
was emerging from its second awful bear market in less than seven years. The
article cited a widespread loss of faith among investors, asserting that “the
death of equities is a near permanent condition.” Equities, so to speak, soon
proved very much alive: the S&P 500 returned 21.55% in 1982, 22.56% in
1983, 6.27% in 1984, 31.73% in 1985, and 18.67% in 1986.5,6
Recession
ahead, the market points the way! Can the behavior of the market foretell a
recession? Is there a causal relationship between a down or sideways market and
an oncoming economic slump? Some analysts see little or no link. Fifty years ago in Newsweek,
the noted economist Paul Samuelson wrote that the equity markets had “forecast nine
of the past five recessions.” He was being sardonic, but he had a point.
Looking back from 2016 to 1945, Wall Street has seen 13 bear markets, only
seven of which (53%) have seen a recession begin within about a year of their
onset.7,8
Take the
words of the pundits with a grain of salt. Some have been right, but many have been
wrong. While the most radical market predictions may make good copy, they may
also lead investors to take bad advice.5
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
06082016-WR-1661
Citations.
1 - cbsnews.com/news/harry-dent-and-the-chamber-of-poor-returns/
[8/19/13]
2 - finance.yahoo.com/q/hp?s=^DJI&a=11&b=29&c=1999&d=11&e=31&f=2014&g=d
[6/2/16]
3 - dividend.com/how-to-invest/10-hilariously-wrong-bullbear-calls/
[1/19/15]
4 - tampabay.com/news/business/markets/economic-naysayers-including-tampas-harry-dent-are-back-with-fresh-reports/2270981
[3/28/16]
5 - forbes.com/sites/katestalter/2015/09/14/6-doomsday-predictions-that-were-dead-wrong-about-the-market/
[9/14/15]
6 - forbes.com/sites/oppenheimerfunds/2014/01/23/clues-from-the-80s-bull-run/
[1/23/14]
7 - cnbc.com/2016/02/04/can-the-markets-predict-recessions-what-we-found-out.html
[2/4/16]
8 - blogs.wsj.com/economics/2013/10/03/plunging-stock-prices-are-good-recession-predictor/
[10/3/13]