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Jeane Dixon and Wall Street Forecasters

The only function of economic forecasting is to make astrology look respectable. – J.K. Galbraith

I know I’m showing my age when I mention the name Jeane Dixon. A self-proclaimed psychic, every December her predictions would grace the covers of tabloid magazines across the U.S.

Mrs. Dixon predicted that World War III would begin in 1958.  She also predicted that George H.W. Bush would win a second term in 1992.  

She did get one prediction correct.  Her last words before she died:

“I knew this would happen.”

This brings us to the track record of Wall Street forecasters.  

As we approach 2017, TV shows and periodicals feature Wall Street analysts’ predictions for the coming year. It’s worth looking at their track record.  

In a December 17, 2007 article, Barron’s polled 12 forecasters from firms like J.P. Morgan and Bear Stearns (who ceased to exist the following year).  On average, they predicted a 10.8% gain for the S&P 500, with the spread ranging from 3%-18%.  

When you compare their predictions to reality, the score was a lot like Jeane’s.  Below is the price level change of the S&P 500 for calendar year 2008.
^SPX Chart

^SPX data by YCharts

Prior to the dot-com bust, the reliability of these analysts’ forecasts was about the same.  A January 7, 2009 article from U.S. News & World Report provides some memorable quotes from this period:

I’m not saying this is a straight line up. I’m not saying you can’t have pauses. I’m saying any kind of declines, buy them! – Ralph Acampora, Prudential Securities, December 1999

(He also predicted the Dow would be at 14,000 by the end of 2000, and an 11-year bull market.)

The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions. – Maria Bartiromo, CNBC anchor, March 2001

And another:

Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull. – Lou Dobbs, CNN, August 2001

(The market was actually in bear territory for another year as the Dow and Nasdaq lost another third.)

To give the quotes some color, the chart below illustrates the price decline that happened during that decade:
^SPX Chart

^SPX data by YCharts

A recent MarketWatch article quotes a Star Capital study showing that since 2000 analyst predictions have had a 19% tracking error. We don’t expect this to change anytime soon.

Considering the record, Wall Street analysts should keep with wisdom of Yogi Berra in mind:  

It’s tough to make predictions, especially about the future.