HWM Market Recap - December 2024
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Every year, industry economists, banks, research firms, and asset managers release widely publicized predictions for where the start market will end the following year. For investors, taking note of what these experts say about the market or economy – as well as your personal beliefs – and revisiting those predictions later can be an excellent exercise in understanding just how difficult it can be to make forecasts.
It is right around this time of the year when we start to see those expert predictions being released for next year. Luckily, these estimates are widely publicized, making it easy for us to go back and see how close (or far) past performance was to the actual results.
The chart below shows aggregated year-end 2024 price targets for the S&P 500 from 20 firms, all issued in late 2023. Some of these names you will likely know (e.g., Citi, Goldman Sachs, Bank of America, Barclays, Wells Fargo, Morgan Stanley, JPMorgan, etc.) all show a wide range of views across the firms. The highest estimate, from Yardeni Research, predicted the S&P 500 would close 2024 at 5,400 – a projected rise of more than 13% above the 2023 closing price of about 4,769.83. Still, the annual return implied by the closest estimate is more than 10% lower than the S&P 500's performance since January. Meanwhile, the lowest estimate, from JPMorgan, projected a decline in the S&P 500 of about 12%, which is nearly 40% lower than the current return.
Wall Street's 2024 Year-End Price Targets vs. Current Level
Data as of 11/29/2023. Source: Tom Aspray, “Should You Worry That Strategists Keep Raising Their S&P 500 Targets?” Forbes, October 20, 2024 and Charlie Billelo, "The Week in Charts (11/13/24)" Bilello.Blog, November 13, 2024
Another way to evaluate these results is by looking at the median, or middle, estimate. This is often referred to as the 'consensus' because it represents the midpoint view. The idea of looking at the consensus view is that while any individual may struggle to predict the market's future, their collective wisdom might be more accurate. However, given that none of the 20 firms came close to the actual results, it is unsurprising that the median estimate also missed the mark.
Furthermore, extending this analysis to compare past consensus estimates with actual market performance can provide further insights. The chart below highlights the implied returns based on consensus S&P 500 year-end price targets compared to the actual returns from 2018 through 2024. Notably, the consensus estimates have consistently fallen short, with implied returns never being within 10% of the actual S&P 500 performance. These ranged from underestimating by 26% to overestimating by 21%. This data underscores why investors should exercise caution when forecasting short-term market movements or relying on widely publicized estimates. Even worse is acting on these predictions to time the market.
Consensus S&P 500 Estimates vs. Actual Returns (2018-2024)
Data from 1/1/2018 - 11/30/2024. Sources: Emily McCormick, “What Wall Street Strategists Forecast for the S&P 500 in 2019,” Yahoo Finance, December 31, 2018; Jeff Sommer, “Clueless About 2020, Wall Street Forecasters Are at It Again for 2021,” New York Times, December 18, 2020; Jeff Sommer, “Forget Stock Predictions for Next Year. Focus on the Next Decade,” New York Times, December 16, 2022; Senad Karaahmetovic, “Top Wall Street Strategists Give Their S&P 500 Forecasts for 2023,” Investing.com, December 27, 2022; and Tom Aspray, “Should You Worry That Strategists Keep Raising Their S&P 500 Targets?” Forbes, October 20, 2024. Chart designed by Avantis Investors.
As mentioned earlier, we are now entering the start of the 'forecasting season' when every major investment firm's predictions are being published, and you may still be curious about Wall Street's outlook for 2025. Among the firms that have issued price targets for the S&P 500, the predictions are more optimistic than in recent years. According to Forbes, the range of estimates spans from 6,500 to 7,000, with a median of 6,633. The median price level implies about a 9% return from where the index stands today.
However, uncertainties remain, including how a new administration's policy proposals might affect markets and the economy, elevated prices, changing interest rates, and ongoing wars in the Middle East and Europe. While some investors find reasons for optimism in the short term, others lean toward caution. Regarldess of your stance, one thing we can count on is that reality often diverges from expectations.
So, where do we go from here? It is not uncommon for investors to assume that a period of strong market performance indicates that the market is overdue for a 'correction.' After all, 2024 has been a year marked by all-time highs – the S&P 500 having reached over 50 already. However, as history shows and as illustrated in the chart below, the stock market tends to deliver positive returns above cash over time.
Time in the Market, Not Timing the Market
(Based on Monthly Rolling Returns from January 1927 – September 2024)
Data based on monthly U.S. stock and cash returns from January 1927-September 2024. U.S. stocks are represented by the Market Portfolio and cash from the RF (risk-free) Portfolio from Ken French’s data library. Monthly rolling return analysis includes 1,162 1-year periods, 1,138 3-year periods, 1,114 5-year periods, and 1,054 10-year periods. Return periods greater than one year are annualized.
The common thread among the charts above is that there is a lot of noise out there. When we zoom out, the data shows that stock prices are set to offer positive expected returns above your return on cash over the long term. Fortunately, long-term investment success does not rely on short-term predictions. Staying disciplined in an asset allocation suited to your goals and risk tolerance has historically delivered a strong track record of success.
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Monthly Changes in Indices
| Year-to-Date Changes in Indices
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Monthly Performance By Sector
| Year-to-Date Sector Performance
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Interest Rates: The Federal Open Market Committee (FOMC) will hold its final meeting of 2024 on December 18th.
Inflation: October's Consumer Price Index (CPI) rose 2.6% over the last twelve months, up 0.2% from September. Core CPI (which excludes food and energy) increased 0.3% month-over-month for the third consecutive month, marking a 3.3% increase over the last twelve months. Notable contributions to October's rise included shelter costs, used cars and trucks, airline fares, medical care, and recreation. The Personal Consumption Expenditures Price Index (PCE) was up 2.3% year-over-year in October, compared to 2.1% in September. Core PCE (the Fed’s primary measure of inflation, which excludes food and energy) increased to 2.8% annually from 2.7% in September.
Housing: The National Association of Realtors reported a 3.4% increase in existing-home sales in October compared to the previous month, with a 2.9% increase from a year ago. The median price for the sale of an existing-home reached $407,200, a 4% annual increase, marking the 16th consecutive month of year-over-year price growth. However, sales of new single-family homes plunged 17.3% in October to their lowest level since November 2022. The median sales price of new homes sold in October 2024 was $437,300.
Mortgage Rates: As of December 5th, 2024, the weekly average for a 30-year fixed-rate mortgage is 6.69%, slightly below the 52-week average of 6.72% and 0.34% lower than a year ago.
Employment: According to the Bureau of Labor Statistics's Employment Situation Summary, unemployment was little changed in November at 4.2%. Job growth was observed in health care, leisure and hospitality, government, and social assistance, while retail trade lost jobs. The Job Openings and Labor Turnover Summary (JOLTS) indicated little change in job openings, hires, and total separations.
Consumer Sentiment: The University of Michigan's Surveys of Consumers improved for the fifth consecutive month, rising about 3% to its highest reading in seven months. Year-ahead inflation expectations increased to 2.9% in December, the highest reading in six months, while long-run inflation expectations declined slightly from 3.2% in November to 3.1% in December.
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Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.