New year, new narratives- no one can predict the unpredictable
This article was published in April 2023
The below is an abridged version of a ‘BpH insight’ we produced for our clients. Send us an email here if you would like to read the full version.
Each year, investors face a barrage of commentary and speculation from the financial press about which stock, sector or country is set to do well in the coming months.
Each prediction tells us a story, their reasoning seems sound. From trend analysis, looking at historical averages or feeding into buzz about new and ground-breaking technologies. However, for every factor considered, there are many more influencing prices every day, a good portion of these will be unforeseen. As Warren Buffet eloquently puts it:
‘Forecasts usually tell us more about the forecaster than of the future.’
Looking back
Before we continue, it is worth seeing how some predictions made for 2022 fared:
‘Next year, we expect S&P 500 to reach 5050 on continued robust earnings growth as labor market recovery continues, consumers remain flush with cash, supply chain issues ease, and inventory cycle accelerates off historic lows.’ – JP Morgan1
Consumers indeed proved not to be ‘flush with cash’ due to high inflation and rising interest rates, The S&P 500 finished the year at 3849, around 18% lower than where it started.
‘Tech… will remain vital, it is among US bank’s top picks, along with consumer discretionary and healthcare stocks’- Forbes advisor2
While healthcare did relatively well, the consumer discretionary and tech sectors were the second and third worst performing in 20223.
‘Our Blackrock geopolitical risk gauge is still near four-year lows’ – Blackrock4
Russia invaded Ukraine on the 24th of February 2022
Incidentally, it is frustratingly difficult to find these predictions online, as links to many financial outlooks for 2022 ‘helpfully’ redirect you to the 2023 editions. Perhaps there is a reason that some may no longer want their older analysis to be seen.
New year, new narratives
The quotes below are taken from articles published by well-known media outlets and demonstrate that 2023 is no different:
‘2023 could be a very good year for renewables.’ – Forbes advisor5
‘Materials—especially metals—look even better than energy at the start of 2023 based on supportive valuations and this industry group’s past performance in periods of weaker manufacturing data.’ – Fidelity6
‘We see energy sector earnings easing from historically elevated levels yet holding up amid tight energy supply. Higher interest rates bode well for bank profitability. We like healthcare given appealing valuations and likely cashflow resilience during downturns’ – Blackrock7
Having seen the 2022 predictions from the same outlets, investors may be more wary of positioning their portfolios to benefit from the narratives of the above.
Seeing through the noise
The challenge that all investors face is that forecasting investment returns based on the information we have today is a highly challenging game to win consistently over the long term. If markets work, then prices effectively reflect an equilibrium position between the views of buyers and sellers and their expectations for the future.
Unexpected shocks, such as pandemics, wars, financial crises, and political turbulence are quickly factored into expectations, and prices adjust accordingly. Very few individuals possess the skill (or fortune) to anticipate such events and reposition their portfolio appropriately.
Take it from the late, great John Bogle:
‘We deceive ourselves when we believe that past stock market return patterns provide the bounds by which we can predict the future.’
Financial firms churn out an endless stream of market outlooks and rigorous analysis of trends. Perversely, this speculation tends to enhance, rather than detract, from their reputations as thought leaders, even if they prove to be wrong. It is only the investors who act on predictions that lose out if they prove to be incorrect.
Send us an email here if you would like to read the full version of this article.
Risk warnings
This article is distributed for educational purposes for UK residents. It should not be considered investment advice, an offer of any security for sale nor a recommendation of any particular security, strategy, platform or investment product. This article contains the opinions of the author but not necessarily the Firm. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
1 2022 Market Outlook: More Upside For Stocks, Economic Growth To Rebound. 2022 Market Outlook | J.P. Morgan Global Research (jpmorgan.com)
22022 Stock Market Outlook https://www.forbes.com/advisor/investing/2022-stock-market-outlook/
3Email us here for more information
4 2022 Global Outlook- 2022 Global Outlook – Institutional | BlackRock
5 Forbes advisor (2023) Top 9 Investing Trends For 2023. https://www.forbes.com/advisor/investing/top-investing-trends-2023/
6 Morgan Stanley (2023) Investing in 2023: A Year to Be Patient and Selective. https://www.morganstanley.com/ideas/investment-outlook-2023-year-patient-selective
7 Blackrock (2023) Global Outlook. https://www.blackrock.com/corporate/literature/whitepaper/bii-global-outlook-2023.pdf
8 Fidelity (2023) 5 surprising investing ideas for 2023. https://www.fidelity.com/learning-center/trading-investing/five-ideas-for-newyear
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