Raise a Toast to Market Forecasts That Were Right in 2014Michael P. Regan
Today arguably would be a good day to make fun of all the people who got it wrong this year -- all the stock-market forecasts that were too low, all the oil price and bond yield projections that were too high, all those Eagles-in-the-Super Bowl predictions.
Yet New Year’s Eve is a time to celebrate rather than mock (excluding Ryan Seacrest, who is always fair game.) So here’s a toast to those who got it right. Or, at least those who got it less wrong than everyone else.
In the U.S. stock market, the Standard & Poor’s 500 Index returned 15 percent including dividends and was poised to end the year just below 2,100. That means the closest darts to the bullseye among strategists tracked by Bloomberg last December were likely the 2,075 prediction from Thomas Lee, formerly of JPMorgan Chase & Co., and the 2,100 call from Michael Purves, chief global strategist at Weeden & Co.
By comparison, the mean estimate of strategists in a survey at the end of 2013 was 1,946, about 6.5 percent below yesterday’s closing level. Purves said last week that continued valuation expansion was the “pain trade” for those who weren’t bullish enough this year. The S&P 500’s price-to-earnings multiple expanded almost 7 percent to 18.4 times reported profit during the year.
Lee, now at his own startup Fundstrat Global Advisors LLC, is predicting a 12 percent rally to 2,325 in 2015. Purves hasn’t released his 2015 forecast yet, but told Bloomberg Television on Dec. 26 that the market could see similar gains amid a slow-but-steady economic expansion and “synthetic earnings growth” through buybacks.
“Putting in another year like we just had is very foreseeable,” he said. That would likely put him toward the high end of the poll again, as the 18 Wall Street strategists who’ve made forecasts so far are only calling for a gain of less than 7 percent to 2,225 on average.
Among 24 developed nations, the S&P 500 trailed only the stock-market returns in Denmark, New Zealand and Ireland in local currencies this year. When priced in dollars, however, the U.S. benchmark index tops the list. The Bloomberg Dollar Spot Index jumped 11 percent in the year, the most ever in data going back to 2005.
As for 10-year Treasury yields, the average year-end forecast from economists was 3.34 percent in December of 2013, compared with yesterday’s close of 2.19 percent. The lowest, and ergo most accurate, was the 2.5 percent forecast from the aptly named Chris Low of FTN Financial. He’s on the low side again for the the end of 2015, with a forecast for 2.75 percent compared with the average projection of more than 3 percent.
Many can claim credit for foreseeing weakness in commodities, such as the ‘‘death bells’’ for the so-called supercycle in raw materials that Citigroup Inc. heard in 2013. Goldman Sachs Group Inc., UBS AG, Credit Suisse Group AG and others made similar forecasts last year. The Bloomberg Commodity Index sank 16 percent in 2014, its worst drop since 2008.
Yet no one quite heard those death bells ringing as loudly as they did in the energy markets. The median forecasts at the end of 2013 called for West Texas Intermediate oil to average $98.63 a barrel in the fourth quarter and Brent to average $105. Instead, WTI plunged 45 percent in 2014 to $54.12 yesterday and Brent lost 48 percent to about $57.90. Whoops!
The closest forecasts tracked by Bloomberg were for a drop to $70 for WTI and $86 for crude by J. Marshall Adkins at Raymond James. He’s yet to make his predictions for next year.
When it comes to all those other (wrong) forecasts for 2014 this New Year’s Eve, Wall Street would probably prefer you ignore the sentiment in that song about old acquaintances: They should be forgotten, and never brought to mind.