Market Pulse: Predictions gone wrong
At the start of every year market analysts often make their predictions for the year. Some of their forecasts seem to occur every year. While it is still early, those often-repeated predictions aren’t going well.
Prediction 1. Stocks will be volatile. You often hear this prediction on financial channels. It is one of the easiest predictions because it always sounds right. But the market isn’t always volatile. The Volatility Index (VIX) has fallen 27% over the last two months. Stocks are where they were a month ago and four months ago. In fact, they are little changed from two years ago. I’ll keep waiting for someone to predict a low volatility market.
Prediction 2. It will be a stock picker’s market. This implies that active management (analysts attempting to choose winning stocks to own) will outperform the S&P 500. Of course an analyst wouldn’t have a job if he said to simply buy a passive low-cost index fund.
It is too early to get the statistics but I can confidently say that most active stock pickers are underperforming in the S&P 500. That’s because the S&P 500 is far stronger than most stocks. Large technology stocks (think Apple, Microsoft, Amazon, Nvidia) have been exceptionally strong and have a 27% index weighting. That’s why the S&P 500 is up 7% in 2023 while the average stock in the index and the average small-cap stock is about unchanged. For a stock picker to outperform this year one would need at least a third of their portfolio in a handful of large-cap technology stocks and little or nothing in the financials.
Prediction 3. The recent trend will continue. Most predictions continue the trend of the recent past. Consider these three common 2023 predictions: The 2022 bear market will continue in 2023. Technology will continue to do poorly so stay in energy. U.S. markets will do best. Nope. Technology was last year’s biggest loser and is this year’s biggest winner. Energy was best in 2022 but has lagged in 2023. iShares Eurozone (EZU) is up 13% and iShares Latin America (ILF) is up 10%. Trends can and will change.
As for the market, stocks are quiet now but that, too, will change. The catalyst may be a surprise rate cut from the Fed or more increases, more trouble in the banking sector or progress in the Ukraine war. Or a recession. Or no recession.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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