Happy New Year!
And if you were invested properly in 2013, a prosperous New Year to you!
2013 was the best year for the S&P 500 since 1997, with total returns in excess of 32%.
Wow. Just wow. We needed that.
I truly hope you were able to capture some of those remarkable returns. It’s all too tempting to look back over a good year or a bad year in the market and say to yourself, “Of course. All the signs were there. It was obvious that was going to happen.”
But the truth is that nobody has ever accurately predicted market movements consistently over time, and hindsight really is 20/20.
But considering how many 2014 market predictions I’ve seen published over the past few weeks, it might be tempting to think that there are experts who DO know what’s coming. Market predictions are the ante for many Wall Street pundits, fund managers and the like, and if we knew whose 2014 market predictions were going to be accurate we could have leveraged our bets and really made some money.
And so, in my quest to bring reason and science to your investing life, I will now showcase some of my favorite 2013 market predictions.
It turns out they didn’t fare so well…
One prominent economic forecaster who earned a name for himself by predicting the financial crisis in 2008 suggested that the conflagration of four economic factors—slow US growth, the EU debt crisis, military conflict in the Middle East and a slump in emerging markets—could combine and lead to what he termed a “superstorm.”
Time Magazine, for one, ran a market outlook article in November of 2012 titled “Why Stocks are Dead” (in bold, large point font). Barron’s ran a cover story that same month warning investors to “get ready for the recession of 2013.”
A famous financial analyst whose articles appear regularly in Forbes, The New York times, and The Wall Street Journal enumerated a host of surefire growth killers including persistent housing foreclosures, weak consumer spending, government deficits, high unemployment and “unsustainable” corporate profit margins. He predicted that in 2013 the S&P would drop to 800, a 42% decline!
And, if negative economic world events led inevitably to negative market returns, pessimism wasn’t entirely unjustified. Recall that in 2013, North Korea continued to conduct nuclear tests, the Pope resigned (for goodness sake), the EU agreed to bail out Cypress, crazed maniacs bombed the Boston Marathon, Edward Snowden fled the country and the entire U.S. federal government shut down for 16 days.
Yet the market climbed steadily skyward.
So, did those Wall Street characters change their tune and get on board?
Of course not! That would be admitting defeat. And relief doesn’t sell newspapers.
On March 5, 2013, when the Dow Jones Industrial Average finally surpassed its previous high of 14,164.53, from October of 2007, the Financial Times reported that the mood among long-in-the-tooth New York Stock Exchange traders was “more anxious than joyful.”
In fact, here is an interesting list of headlines from some of our best known news sources:
- “Rebirth of Equities Ain’t Necessarily So,” Financial Times, January 12
- “Scant Pickup in Economic Growth Seen for 2013,” Wall Street Journal, February 8
- “Stock Markets Defy Economic Woes,” Financial Times, March 7
- “As Investors Rush in, Stocks Are Sending Warning Signals,” Wall Street Journal, July 7
- “Lofty Profit Margins Hint at Pain to Come for U.S. Shares,” Wall Street Journal, August 24
- “Profits Boost Needed for Wall Street’s Equities Run,” Financial Times, September 18
- “Get Ready For a Drop in Stock Prices,” Wall Street Journal, October 7
- “Is This a Bubble?” Wall Street Journal, November 16
Unfortunately, if you heeded the advice of some of these so-called experts, you ran for the hills in 2013 and missed some pretty serious gains.
And now that we’ve finished a killer year like 2013, everybody’s favorite 2014 market prediction is, “But it won’t happen again this year!” Because of course, 2014’s returns couldn’t possibly rival those of 2013. Right?
And certainly not them.
Best to just stay the course.