Dec 18 • 3 min read
Up 17%... despite the bad news?
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If you judged the stock market by how it felt this year, you probably would’ve bet against it. Trade wars. Inflation fears. Recession warnings. A steady drumbeat of reasons to be cautious, if not outright pessimistic. And yet, once again, the market quietly climbed a wall of worry. Before we dive in, did you catch this week's podcast?👇 Walls of WorryIt’s often said that the stock market "climbs a wall of worry." This year has been a textbook example. When President Trump announced new tariffs on April 2, the S&P 500 closed at 5,670. In the days that followed, the market plunged below 5,000, falling more than 10% in less than a week. The reaction was predictable... Market strategists rushed to revise their year-end S&P 500 forecasts downward. (We'll set aside the irony of revising something that was supposed to predict the future 🤪) Here’s how those revised forecasts ultimately stacked up against reality: The outcome? The S&P 500 is now up 17.8% for the year, including dividends. International markets have done even better, returning 28.5%. Based on how things felt in April, it’s fair to say those results were anything but obvious. Bad News Never Takes a BreakDespite these strong returns, pessimism hasn’t gone away (it rarely does). Negative headlines attract attention, clicks, and ad dollars, encouraging the media to continue churning out dire predictions. One recent WSJ article summed it up this way: “Tariff pains haven’t been canceled. They have just been deferred.” Maybe. We’ll see. 🤷 The argument now is that the economic pain has merely been postponed. Some point to massive investments by U.S. technology companies in Artificial Intelligence (AI) as a key reason. And many of the same forecasters who missed the scale and speed of this AI boom still sound just as confident about what comes next. The List of “Perfectly Reasonable” WorriesThroughout the year, there has been no shortage of credible-sounding reasons to expect market trouble. A few examples: Slowing global growth. Oxford Economics cut its 2025 forecast from 2.6% to 1.6% after the tariffs. Now? Growth is expected to top the original call at 2.7%. The end of the dollar’s dominance. De-dollarization was framed as an imminent threat. The dollar bottomed in September, and the storyline largely faded. Runaway inflation. Inflation warnings have been loud. The latest reading of 2.8% is higher than last year, but still below the long-term average of 3.8% since 1960. The Real LessonMy goal here isn’t to argue whether those worries were reasonable. Many were. The point is that great companies adapted anyway, and that’s why forecasting markets is so hard. This is especially timely as we head into year-end. “Experts” are once again dusting off their crystal balls to tell us where the market is headed next year. But before you give those forecasts any weight, let's look at their track record. The results are sobering. In seven of the past eight years, the median forecast missed the actual year-end level by more than 10% (high or low). On average, it was off by more than 16%. That’s not just bad. It’s astonishing. And yet, the ritual continues, often leading well-intentioned investors to make portfolio decisions based on forecasts that have repeatedly proven unreliable. You don’t have to play that game. The key reminder is simple: never confuse someone’s confidence in making a prediction with their ability to make one accurately. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |