Wall Street strategists are staring into their crystal ball and predicting what they always predict for the year ahead – decent if not spectacular gains, with the average forecast projecting S&P 500 gains of about 10 per cent.
Similar forecasts were delivered a year ago, but they proved wide of the mark. Including dividends, the S&P 500 soared 25 per cent in 2024 – roughly 20 per cent above the average target.
2024 was not an anomaly in this regard, with Bloomberg data showing returns were outside the range of all forecasts in seven of the past eight years. No one wants to stick their neck out; better to play the part of the cautious bull and predict average returns.
The thing is, while stocks have historically averaged annualised returns of about 9 per cent, average returns are actually very rare – over the last century, there was only one year where returns were in the 8-10 per cent range. In contrast, the S&P 500 enjoyed gains of above 25 per cent in 26 of the past 96 years – roughly one year in four.
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Awful years are also not uncommon. As BCA Research puts it, stock markets like “extremes”. Consequently, it predicts the S&P 500, currently about 5,900, will likely either fall below 5,500 in 2025 or rise above 7,100.
Don’t be surprised by a big upside or downside move. Strategists who play it safe will, says BCA, “probably be way off”.
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