There is no questioning the enormous influence of investment managers and analysts on Wall Street – in their power to raise or lower a stock about which they publish a buy or sell recommendation. But somehow precisely when those professional parties, the biggest money managers in the world, are asked to predict the direction of the stock market a year in advance, they miss big time after time.
Take for example the year 2024, which ends in a moment with impressive increases on Wall Street, this is already the second year in a row; Already now it can be declared that even in the past year the crystal ball of the big investment managers disappointed in a big way.
According to a Globes test, at least since the beginning of the current decade, forecasts have been missed by a considerable margin in each of the years regarding the performance of Wall Street’s flagship index. On Wednesday this week, the S&P 500 broke its record for the 56th time this year, and reached a level of 6,086 points, an increase of nearly 28% since the beginning of the year (and this after in 2023 it increased by 24%).
But if you were to rely on the forecasts provided by the world’s largest investment managers towards the beginning of 2024, you probably would not have enjoyed this return. It’s quite possible that you would even sell your stock portfolio, because they estimated that the S&P 500 index would rise by only 1% this year.
With such a forecast, for a return that is significantly lower than that offered by a safe investment in government bonds, an investor may think that there is no reason to stay in the stock market and bear the great risk inherent in it.
However, as big as the loss of the major investment bodies was last year (on average they bet on an index 21% lower than its current value), it is not the worst since the beginning of the decade: in 2022 they expected, on average, a 10% increase in the S&P 500 but this It actually plunged by almost 20% that year (a 27% miss). In the other years from the beginning of the decade, they saw moderate increases – but the market rose twice or more.
The pessimists were very wrong
Some of the major investment bodies abroad were even bearish on the market and estimated that it would go down, and this after in 2023 the American stock market jumped sharply while they expected a moderate increase.
At the head of the list of “bears” was the financial services company Oreana, with a particularly gloomy forecast of a 27% drop in the American flagship index to the level of 3,500 points by the end of the third quarter in 2024, which of course did not happen.
The forecast of the world’s largest bank, JP Morgan, was also not encouraging to say the least, when they expected a 12% drop in the index to a level of 4,200 points. Morgan Stanley also expected declines of almost 6% to the level of 4,500 points.
UBS Bank, Wells Fargo and Goldman Sachs also expected declines. Societe Generale estimated that the market would reach 4,750 points by the middle of the year, then fall sharply to 4,200, but the index did not fall below 4,688 points on any of the days.
They often had reasons. J.P. Morgan explained that growth in the US is expected to slow to 0.7%, along with erosion of public savings and interest rate increases, and therefore the 11% growth forecasts in corporate profits seemed “unrealistic”. However, they were wrong in each of these parameters. Growth in the US B in the third quarter meanwhile reflects an annual rate of 2.8%, and the companies’ profits are also increasing at a rate of 6%-12% (depending per quarter).
At Goldman Sachs, they preferred investing in US government bonds, which at the time gave a yield of 5.5%, and even netted a bank deposit when they stated that “you will get slightly better returns than the seven best stocks on Wall Street (the wonderful 7 – Apple, Nvidia, Microsoft, Amazon, Google, Meta and Tesla, NA), but it’s not a dramatic difference”. which approach the yield of the American stock market in the last year.
As for the wonderful 7, some analysts estimated that after they “carried” the index on their backs the year before, they ran out of air. This fear was also misplaced. The Roundhill Magnificent Seven ETF (NYSE: MAGS), which was launched late last year and tracks the performance of these 7 tech giants, has delivered an impressive 58% return since the beginning of this year.
Much of this was achieved, of course, thanks to the chip share Nvidia which continued to fly with a return of 193% since the beginning of the year to a value of 3.47 trillion dollars (becoming the second largest company in the world in terms of market capitalization). also Meta (a jump of 74% this year), Amazon (44%) andTesla (44%) contributed to the yield of the basket fund.
BlackRock, the largest asset management company in the world, warned on the eve of the beginning of the year that the American Central Bank (Fed) ‘will no longer come to save the markets’ so quickly, and that one should get used to high interest rates with extreme and unusual uncertainty.
The investors, to their delight, ignored the warning, and except for a sharp and spotty drop in early August, following a momentary crisis in Japan, no dramatic declines were recorded in the market. The interest rate in the US has already managed to drop by 0.75% and is expected to drop another percentage in the coming year.
“Bulls” but not enough
But even the most optimistic of the investment banks on Wall Street did not correctly estimate the strength of this year’s increases. Bank of America explained that they were optimistic but still expected an increase of only 5% in the S&P to the level of 5,000 points: “We are ‘bullish’ not because the Fed is expected to lower interest rates, but because of what it has already achieved. The companies have adjusted to the higher interest rates and inflation,” explained the bank.
At Deutsche Bank, they expected a 7% increase in the flagship index and estimated that “if corporate earnings growth continues to recover as we expect, valuations will be well supported around the top of our forecast range, as is typical for earnings growth pricing.”
The most optimistic were Capital Economics with a forecast of 5,550 points for the index, where they explained that “if the enthusiasm for artificial intelligence creates a bubble in the S&P 500, then we are still only in its early stages.” But even this forecast was very far from the 6,086 points that the index shows today.
In Israel they also underestimated
And what did local investment houses predict on the eve of the beginning of this year? The Israeli managers, it turns out, were more optimistic than their American counterparts, but they also did not foresee the surge that the market registered in the last year.
The average of the forecasts of the investment houses given to Globes at the end of 2023, expected a 6% increase in the S&P 500 index, compared to the aforementioned expectation of an increase of 1% on average for the Americans. The most optimistic entities were Altshuler Shaham (11%), Meitav, Bank Hapoalim and Tamir Fishman with 10% each, Analyst (9%) and Psagot with an expectation of 8%.
Not only that, the local bodies were more optimistic about the local stock market than the American one when they saw an average jump of 12% in the local flagship index, TA 35, this after it disappointed in 2023 with a return of less than 4%, amid the promotion of legal reform and the beginning of the war, but in practice it also provided a fantastic return of 24%, double what was expected.
By the way, at the investment house, an analyst qualified that the forecast they gave for 2024 is subject to the fact that another extensive front in the war will not be opened. This is also the opinion of the Capital Markets Tower, who stated that “in the geopolitical arena, the uncertainty is prominent, and a deterioration in one of the existing conflict arenas, or the opening of a new arena, may also cloud the markets.”
And although such a front was certainly opened on the northern border against Hezbollah, and Iran also joined the campaign with two missile attacks on Israel, the year ends with an impressive return in Tel Aviv, much better than what investment houses expected. Most of the increase was achieved after the beeper attack in Lebanon in September and the killing of terrorist Rabbi Hassan Nasrallah And Yahya Sinwar soon after.
Why do you need the managers?
Amir Kahanovitch, Chief Economist and Deputy CEO of Profit, explains that those who expect an investment manager to beat (or predict) a certain index are making a mistake, because the chance of doing so consistently is not high. and wars. Even if the manager beats the index several times – it’s more luck than intelligence.”
Ronan Menachem, the chief economist of Bank Mizrahi Tefahot, adds that “both the global economy and the local economy were subject to an extraordinary degree of uncertainty in the past year. To this must be added the phenomenon of more frequent turns in the markets than in the past, and the shortening of business cycles. Therefore, it is more difficult to give Forecasts and also the division into a calendar year lose some meaning.”
Menachem even details how it is simply impossible to predict all the variables that ultimately affect the market: “It turned out that the story of the 7 Wonders (at least some of them) continued, that the financial reports surprised for the better every quarter, that AI completely changed the rules of the game and that there was no ‘landing’ soft’ of the economy, certainly not in the US, where GDP grew at an annual rate of 3%. That is why the US markets are the ones that led the increases.
“The forecasters did not foresee this, but it cannot be said that the rules of the game did not work, on the contrary. As evidence, the German stock market rose much less than the American market and reflected the recession that Germany fell into. The election of Trump also had a magnetic effect that gave further momentum to the US markets towards The end of the year, and this again reflects the difficulty of giving an annual forecast.”
Kahanovitch of Profit points out that despite the missed forecasts, “it is still very worthwhile to use the services of an investment manager. Unlike the average investor, an investment manager very likely knows how to build an efficient investment portfolio, combine asset classes with inverse correlations and create a very wide spread. A portfolio that is highly likely to achieve Over time, a higher return and to neutralize many psychological, operational and fiscal mistakes.”
Positive outlook for 2025 performance
Looking ahead to 2025, it can be seen that even the most pessimistic of the world’s financial managers have had to become optimistic, albeit in a reserved way. Thus, the JP Morgan bank, which for two years has repeatedly warned of an imminent fall, has changed its tone and estimates that the S&P 500 index will rise by 7% to a level of 6,500 points at the end of the year. Along with him are also Morgan Stanley and Goldman Sachs. The most pessimistic bank UBS also expects a 5% increase. Slightly above them are RBC, Barclays and Bank of America.
The one who made the sharpest change is Wells Fargo, which after forecasting a decrease last year expects this year that the index will jump by 15% to a level of 7,007 points. Adjacent to it are the most optimistic of last year – Capital Economics, Deutsche Bank and Jordani Research, all three of whom predict that the index will reach a level of 7,000 points by the end of 2025.
On average, the largest investment managers in the world predict that the S&P 500 will rise in the coming year by 10% to approximately 6,700 points. If that happens, it will be the third year in a row of a double-digit increase in the American index.
Bank of America cited as reasons for optimism the expected interest rate cuts, an increase in productivity in the American labor market and a more favorable background for the companies’ activity under the new President Donald Trump.
At Wells Fargo, investors are urged to enter the S&P 500 index with equal weight, and at Morgan Stanley, they fear great volatility and predict that the index could move from a range of 7,400 to a fall to 4,600.
At the consulting company Yardeni, they are ready to bet a little further ahead, and estimate that the index can reach 10,000 points by the end of 2029.
Still, if you look really hard, you can find one investment manager, the consulting company BCA Research, with a particularly gloomy forecast: that the market will fall into bearish territory with a 33% collapse to the level of 4,100 points.
In their opinion, “the labor market is starting to crack, unemployment claims are 15% higher than in 2018-2019, consumer spending is showing signs of weakening and there is a decline in residential construction, which is a reliable indicator of a recession. This will not be a crisis like Lehman Brothers (Crisis 2008, n. a), but something more similar to the savings and loan crisis (the debt crisis of 2011 in Europe, NA)”. However, the same body last year predicted a 27% decline in the S&P 500 in 2024, which turned out to be a colossal mistake.