It is that time of year. The time for market predictions and economic forecasts. Yearend 2022 found the vast majority of stock market pundits predicting a flat to down year for stocks in 2023. As it turned out, the average stock in the S&P 500 Stock Index was up 13.9%. In addition, most economists were predicting a recession that never materialized.
Attempts to forecast the stock market are futile, and those who get it right are just lucky. No one during my career has been able to call markets with any consistency. There are just too many variables. With regards to the economy, economists have not done much better.
Despite this dismal track record, we continue to hear market pundits make forecasts with great conviction. I feel there is great benefit to admitting that “I don’t know,” when asked to forecast the stock market or the economy.
By accepting the fact that we don’t know, we can make rational decisions that can allow us to earn the long-term returns that stocks have to offer. Over the last 50 years stocks have averaged about a 10% return. Studies have shown that not being invested and missing the few best market years has a serious negative impact on long-term equity returns. Those good returns always seem to come when least expected, just as we experienced this past year.
The best strategy for equities is to invest in well-managed companies with strong business franchises and to remain invested. High-quality fixed-income securities of short to medium duration will provide stability and income to a portfolio while reducing risk and volatility. We will continue to follow this strategy. I will not try to make market forecasts, because “I don’t know.”
Best regards and all good wishes for the New Year.
Bill