The Silly Season of Market Forecasts

Key Points:

• Short-term market forecasts are consistently inaccurate, often missing both the direction and magnitude of market returns despite their confident presentation.
• Forecasts persist because they generate attention and provide psychological comfort, not because they offer reliable guidance for investment decisions.
• Investors are better served by focusing on controllable factors—a long-term plan, low costs, and diversification—while using only long-term market assumptions (not annual predictions) for financial planning and asset allocation.

As year-end approaches, the annual market-forecasting ritual begins anew. Over the next several weeks, Wall Street’s strategists will publish their expected returns for 2026—complete with precise numbers, persuasive narratives, and confident language.

But just how accurate are these forecasts? And how much weight should they have on your personal investment decisions?  

Accuracy: The Track Record Isn’t Pretty

If market forecasts have proven anything, it’s the difficulty of predicting future returns. These forecasts routinely miss the magnitude of the market’s move—and often miss the direction entirely. For example, the Wall Street Journal recently showed how badly strategists missed the mark:

• 2024: Analysts predicted a 7.4% S&P 500 gain; strategists predicted 1.3%. Actual result: 25.02% total return.
• 2023: Analysts expected 17.5%; strategists expected 6.2%. Actual result: 26.3% total return.

Investment strategist Joachim Klement analyzed more than 20 years of forecasts and concluded that “strategists and equity analysts got it wrong practically every year.”

The evidence is overwhelming: short-term market predictions simply do not work.

So Why Do Forecasts Keep Coming Out?

Despite their poor accuracy, market forecasts keep coming out each year because investors quickly forget last year’s misses and are eager for the “new” outlook. People naturally focus on what’s ahead rather than reviewing past predictions, which creates ongoing demand for forecasts. At the same time, these predictions provide a psychological anchor, giving the illusion of certainty in an unpredictable market. For better or worse, it has become an annual ritual.

The Danger of Believing Market Predictions

Market outlooks don’t just present numbers—they present narratives. Once investors hear a compelling story, they may feel tempted to adjust their portfolio based on a prediction that has no demonstrated accuracy. Even worse, bold contrarian calls often attract the most attention, thanks to social-media algorithms that reward controversy and fear. Before acting on any forecast, ask yourself:

• If someone truly knew the market’s direction, would they broadcast it for free to millions of investors?
• Are they presenting a balanced range of outcomes—or simply making an exciting prediction to stand out?
• Is their language meant to inform—or to spark fear, excitement, or FOMO?

Focus on What You Can Control

In both investing and life, outcomes improve when we focus on controllable factors:

• Sticking to a long-term plan
• Keeping fees and taxes low
• Staying diversified
• Avoiding emotionally driven changes

These principles have a far stronger impact on long-term wealth than any annual market forecast.

When Market Outlooks Can Be Useful

While short‑term market forecasts rarely hit the mark, valuation-based methods such as the CAPE ratio — developed by Nobel Laureate Robert Shiller — offer a more grounded, long-term framework for estimating likely future returns (with wide confidence intervals).

Long-term projections can help financial planners create durable retirement plans. However, relying on historical averages can be dangerous—especially after a prolonged period of above-average returns. This is particularly critical for retirees, who can’t easily adjust by saving more or working longer.

At Luminvest Wealth Management, we base our planning assumptions on current market and economic conditions, informed by the Vanguard Capital Markets Model rather than long-term historical averages. For example, under these assumptions, we currently project that over the next decade U.S. equities may deliver a median annualized return of approximately 5.2%, substantially below their long-term historical average of ~10%.

Today’s environment also suggests a relatively low equity risk premium, meaning the extra return for taking additional stock market risk is smaller than usual. In such environments, the potential reward for extra volatility may be limited.

Conclusion

Short-term market forecasts are unreliable, often misleading, and sometimes harmful. Long-term investing success comes not from predicting the next 12 months, but from following a disciplined process based on evidence—not on guesswork. Focus on what you can control and let Wall Street’s annual guessing game be entertainment—not strategy.