10 Predictions you can count on for 2016


Posted by: Nicola Macdonald, on January 13, 2016.


At the beginning of a new year it’s a customary time to speculate. In a digital age, when past forecasts are available online, market and media professionals find it harder to hide their blushes when their financial predictions go awry. But there are ways around that.

Predictions that flopped in 2015

The ignominy that goes with making bold forecasts was highlighted in a recent newspaper article, which listed many bad calls US economists had made about 2015. These included getting the timing of the Federal Reserve’s interest rate increase wrong, incorrectly calling for a rise in long-term bond yields and assuming an end to the commodity rout. See note 1.

For the broad US equity market, 22 strategists polled by the Wall Street Journal (see note 2) estimated an average increase for the S&P 500 of 8.2% for 2015. The most optimistic individual forecast was for a rise of 14%. The least optimistic was 2%. No-one picked a fall. As it turned out, the benchmark ended marginally lower for the year.

In the UK, a poll of 49 fund managers, traders and strategists published in early January 2015 forecast the FTSE 100 index would be at 6,800 by mid-year and 7,000 points by year-end. As it turned out, the FTSE surpassed that year-end target by late April to hit a record high of 7103, before retracing to 6242 by year-end. See note 3.

Australian economists were little better. A January 2015 Fairfax Media poll found the consensus view was that local official interest rates would stay on hold all year.The Reserve Bank of Australia proved that wrong a month later, before cutting rates again in May.

It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. Even a stock like Apple, which for so many years surprised on the upside, disappointed some forecasters last year with a 4.6% decline. See note 4.

In Australia, among the “Top Picks for 2015” published by one media outlet a year ago were such names as Woodside Petroleum, BHP Billiton, Origin Energy and Slater & Gordon, all of which suffered double-digit losses in the past year. See note 5.

Warning: Don’t base your investment strategy on opinion

It should be evident by now that setting your investment course based on someone’s stock picks or expectations for interest rates, the economy or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So the better option is stay broadly diversified and, with the help of an adviser, set an asset allocation that matches your own risk appetite, goals and circumstances.

Of course, this doesn’t stop you or anyone else having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger is when you base your investment strategy on an opinion.

In the meantime, if you insist on setting store by forecasts, here is a list of ten predictions you can count on coming true in 2016:

 

  1. Markets will go up some of the time and down some of the time.
  2. There will be unexpected news. Some of this will move prices.
  3. Acres of newsprint will be devoted to the likely path of interest rates.
  4. Acres more will speculate on China’s growth outlook.
  5. TV pundits will frequently and loudly debate short-term market direction.
  6. Some economies will strengthen. Others will weaken. These change year to year.
  7. Some companies will prosper. Others will falter. These change year to year.
  8. Parts of your portfolio will do better than other parts. We don’t know which.
  9. A new book will say the rules no longer work and everything has changed
  10. Another new book will say nothing has really changed and the old rules still apply.

Prepare for all climates

You can see from this list that if forecasts are so hard to get right, you are better off keeping them as generic as possible. Like a weather forecaster predicting wind, hail, heat and cold over a single day, your audience will prepare themselves for all climates.

The future is always uncertain. There are always unexpected events. Some will turn out worse than you expect; others will turn out better. The only sustainable approach to that uncertainty is to focus on what you can control.

To discuss an investment strategy that suits your own situation please call 01825 763366 or complete the contact form to arrange a consultation.

Notes:

  1. Malcolm Maiden, “The Year Market Economists Failed to See Coming,” SMH, 30 December 2015
  2. “Strategists Expect Stocks to Keep Climbing in 2015,” WSJ, 2 January 2015
  3. “Five Fund Strategies to Ride Rising Markets,” The Times, 3 January 2015
  4. “Seven Stocks to Buy for 2015,” CNN Money, 31 December 2014
  5. “Top Stock Picks for 2015,“ Motley Fool


|

Enter your email

Get free investment, pensions and wealth management news and advice.

* indicates required

*We will never share your details with any third party.


Categories



Client Stories





Book a consultation


Your Name (required)

Email (required)

Phone Number

Age

Employment Status

Income

What you would like to talk about?

captcha

Enter exactly what you see above






Enter your email to receive free relevant news and updates.

* indicates required

*We will never share your details with any third party.


Latest… View all




Putting the current stock market decline in context


There’s no doubt hyperbolic headlines depicting the recent falls on the world’s financial markets are potentially anxiety-inducing. With the FTSE 100 Index falling to its lowest level since April 2017, the effect of the headlines is to promote a sense of uneasiness; we’re here to remind you that this shouldn’t be the case. Instead of […]

Read more →


Inheritance Tax is an avoidable tax


It is often said that Inheritance Tax is an avoidable tax, but many of us somehow fail to avoid it. Why is this? In our experience, clients’ failure to plan effectively is a result of the following perceived problems: Speed – How often will the thought of having to survive 7 years from the date […]

Read more →


What went wrong with the forecasts?


Reading the tea leaves Investors at year-end are inclined to reflect on the 12 months gone and muse on what the coming year might bring. Aware of this appetite for speculation, themedia tends to feed it with forecasts. These articles can be fun to read, but are even more so a year later. In January […]

Read more →


What should investors make of bitcoin mania?


Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios. Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and […]

Read more →