I want to start by acknowledging that short-term forecasts are worthless. If you had a dream that the market was going to be up 20% next year or you threw a dart and came up with an 18% return forecast I’d say you have just as good a chance at being correct as Wall Street professionals whose career is based on attempting to forecast. Nevertheless people like the false sense of security that comes from an expert prognosticating the future and thus the we continue to hear forecasts. So with that said, I figured I might as well come up with a forecast of my own.
Barron’s published Wall Streets’ forecasts for 2014 a couple weeks ago. The consensus view is for the market to increase slightly over 11% with profits increasing 9% and GDP growing at 2.7%. Sounds a lot like 2013 forecasts to me.
I think i’ll roll with some of the updated economic forecasts and predict GDP growth in the low 3% range. However I don’t think the improved economic growth will translate into improved profitability. As the economy expands and the unemployment picture improves, I think companies will find that they are no longer able to wring out higher profits via low labor costs. While I think that the market starts the year up as momentum for 2013 initially carries over, once profit growth fails to materialize the market will begin to sputter in the second half. Thus I predict the market will initially climb 5-15% but ultimately finish the year in the red with a loss of 5%. My background in BS might not be as good as the forecasters on Wall Street but 60% of the time it works every time 😉
Happy New Year