Why are market predictions so unreliable, and what can you focus on instead?

January 9, 2024

At the start of a new year, it’s common to see articles sharing predictions about what could happen on the stock market over the coming 12 months. 

It’s no surprise that articles like this are so popular, particularly in 2024. With a US general election on the cards as well as ongoing uncertainty about global inflation and interest rates, it’s understandable that investors are looking for some reassurance.

Thing is, market predictions are rarely useful, and in some cases they can be detrimental to your wealth. Read on to discover what you can focus on instead to give your investments the opportunity to grow in 2024. 

Even Wall Street’s predictions for 2023 were inaccurate

The Business Times has published a review of some of the predictions that Wall Street made for 2023, demonstrating how even the very top analysts can be wrong. 

The top three predictions in January, according to the report, were:

  • The S&P 500 would fall significantly
  • Chinese equities would rise on the back of economic recovery
  • US Treasury bond yields would plummet. 

In reality, US stocks performed exceptionally well in 2023. CBS News reports that: 

  • The S&P 500 rose by 24.2%
  • The Dow Jones Industrial Average rose by over 13%
  • The Nasdaq Composite returned an exceptional 43%. 

Meanwhile, according to AXA, US Treasury bond yields are now higher than they were at the start of 2023. 

Additionally, CNN reports that Chinese equities fell in value across the year, partly due to disappointing economic performance after the country relaxed Covid rules at the end of 2022. 

So, when it comes to predicting what could happen next on the markets, even the most knowledgeable people can – and do – miss the mark. 

It’s impossible to predict the stock market’s next move with accuracy

To understand why market predictions are so unreliable, you need to consider the nature of the stock market itself. 

Far from being a singular homogenous entity, the stock market is composed of thousands of different companies. From huge corporations like Apple, Microsoft, and Coca Cola down to much smaller companies that you may not have heard of, there is an entire eco-system represented on these markets. 

When you look even more closely, you’ll notice that movements on the stock market – the fluctuation in value of various holdings – are influenced by the actions of millions of individual investors. 

While we all like to think of ourselves as logical thinkers making sensible decisions, finance and investing decisions are often driven by emotion. Imagine attempting to predict what millions of individual investors, each with their own goals and priorities, might do next?

On top of this, you also need to consider the larger shocks that can affect a stock’s price. Global events such as the Covid pandemic and the war in Ukraine can rarely, if ever, be predicted. This adds yet more complexity to the task of predicting how the stock market could perform in 2024. 

By thinking about the stock market in these terms, you can start to see why it is so difficult for economists and stock analysts to reliably predict what could happen next to any particular stock. 

Basing investment decisions on predictions could be detrimental to your wealth 

Given how difficult it is to predict what could happen next on the stock market with accuracy, it follows that basing your decisions solely on these predictions is rarely sensible. In fact, it could even be detrimental to your overall wealth and hinder your ability to reach your goals. 

By basing investment decisions on speculation rather than careful research, you risk putting your money into unsuitable funds. For example, you might be inadvertently investing in a higher risk fund than is appropriate for you. 

Another risk is that you could be jumping onto a hype cycle. Hype cycles can put your wealth at risk because often, by the time a stock becomes popular, its price has already become inflated by so many investors piling in. As such, you might be buying at its highest price, only to shortly witness the stock plummet in value. 

These are just two reasons to tread carefully if you’re considering making an investment as a result of a prediction for the year ahead. 

Read more:  Are you putting your wealth at risk by investing in the latest hype cycle?

Predictions can’t take your personal circumstances into account – but your planner can

When you build a portfolio to help you achieve a specific goal, your planner will help you to select investments that are suitable for you. This means that they align with:

  • Your attitude to risk
  • Your capacity for loss
  • Your personal values and priorities 
  • The time frame within which you’d like to achieve your goal. 

When each of these variables is carefully considered, you can choose investments that are much more likely to help you grow your wealth and achieve your goal. In addition, your planner can also guide you through periods of market volatility that could affect your investments to help you mitigate the impact on your wealth.    

So, when you read market predictions for the coming year, remember that the person making these predictions doesn’t know your personal circumstances. Their predictions are broadly applicable, and as such aren’t tailored to any individual investor. As a result, the suggestions they make are unlikely to be suitable for you personally. 

Get in touch

If you’d like to learn more about how we can help you to build a bespoke investment portfolio that enables you to move closer to achieving your goals in 2024 and beyond, please get in touch. 

Either contact your financial planner directly, email us at hello@ascentawealth.com or fill in our online contact form to organise a meeting and we’ll get in touch.