I am a huge Packers fan. The Packers recently hosted the 49ers in a playoff game they were expected to win. They had the home-field advantage and key players who had been hurt were returning. Even better, the Packers had beat the 49ers earlier in the season. Analysts and Vegas odds gave the Packers the edge. All of the information available pointed to a Packers’ victory. But they lost.
We did not have future knowledge of what was going to happen during the game. The Packers were awful offensively. That is the thing with predictions. Everyone has predictions about everything, including the stock market. But all you have is the information that is available today. So what does that say about future market predictions? I share my thoughts in this episode of Best in Wealth.
Outline of This Episode
- [1:06] An unexpected playoff loss
- [4:02] Where is the Stock Marketing Heading?
- [7:18] Two banks made opposite predictions
- [10:18] When market predictions are dead wrong
- [16:30] The Fed makes their announcement
Optimism regarding the stock market
I recently recorded an episode about being optimistic about the stock market. But there has not been a lot of optimism going around. So much is going on and everything has been volatile. I am recording this episode on Friday, January 28th. Two days ago, the Fed made its announcement about 2022. Up until that day, the S&P 500 was down 9%, the NASDAQ was down almost 15%, and Bitcoin was down almost 20%. The big question was: Before the Fed chairman steps in front of the microphone, is it time to buy the dip? Or sell everything?
Two banks made opposite predictions
A MarketWatch article shared that two giant banks made opposite predictions Wednesday morning. Goldman Sachs—led by Peter Oppenheimer—argued that it was time to buy the dip. Goldman Sachs is one of the biggest banks in the country with a team of strategists behind it. They believed that returns would be lower but the bull market would continue as long as the economy continues to grow. They argued that the market would be fine and they encouraged buying.
But Barclays argued that it was time to sell. Interest rates continue to rise. There is conflict with Russia. The COVID-19 pandemic is still running rampant. They said do NOT buy the dip. They believed valuations were too high and there was downside risk to earnings after the binge in consumption goods. They believed that the S&P 500 would drop at least 8% and as much as 20%.
What would you do after reading this article? With two large banks at odds, who do you trust and believe?
When market predictions are dead wrong
One of the most egregious predictions that I had ever heard came from Ken Fisher. He was the Executive Chairman and Co-Chief Investment Officer of Fisher Investments. He is a fiduciary that believes in timing the market. I do not. In 2003, he predicted the bubble in tech stocks and he was right. But if you make enough predictions, everyone is right eventually, right?
In 2008, he predicted that the year would be a good year for stocks, particularly bank stocks. He was dead wrong. The S&P 500 ended down 38%. Bank stocks were the worst in the world. He thought that the very best stock to buy in 2008 was AIG, the insurance company. The government had to bail out AIG from bankruptcy. That stock dropped over 90%. Do you think Fisher Investments emphasized this incorrect position? It was THE worst performer in the S&P 500.
The Fed makes its announcement
On the 26th of January, the Fed made its announcement. With every word, the stock market continued to drop. They planned to further reduce bond purchases in February and completely cease the purchase in March. Drop. They issued a March rate increase for the Federal funds rate—i.e. Interest rates would increase, which we already knew. The markets dropped. The final dagger was that interest rates would likely be raised multiple times in 2022. The DOW sank 350 points. But guess what? The market stabilized.
We only have the information that is available today. No one knows how the game will play out. So many things can impact the market. All of these predictions are causing confusion, anxiety, and stress—especially for those getting ready to retire. It is leading to emotional decision-making. What should you do instead of listening to market predictions? Listen to hear my thoughts!
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.