I had great plans to write an engrossing newsletter exploring the issue of year end economic predictions, and their miserable track record of accuracy. Noted economist John Kenneth Galbraith is quoted that “the only function of economic forecasting is to make astrology look respectable”, which I planned to use to set the tone of the piece.
Then a delay of a day turned into weeks as Christmas decorations went up and down, snow on the driveway went down and up, the government shuts down and restarts up, markets did what they do in the short term and Valentine’s Day decorations began to appear. About then it occurred to me that no one but me really cared what the year-end forecasts had said about the year ahead, and I only cared about it as newsletter source material. People would ask me if I thought the recent trend would continue in much the same way one would casually ask “did you get any your snow your way?”, with about the same interest in the answer.
Too often, financial journalists cast the question of economic forecast as we do the event of the perennial rodent on Groundhog Day, that it will be either Light (positive) or Shadow (negative). Rodents and investment markets are not linked, as neither dictates its activity by a glimpse of the ground to start the day.
It seems to make more sense to look back at history to possibly gain a better perspective on what to expect. The reason that published investment returns always state that “past performance is no guarantee of future results” is that nothing can be guaranteed other than future performance lies in the unforeseeable future.
Just consider this. From the year 2000 through 2017, the S&P 5001 has had downturns of at least 10% no less than 9 times, and two of those were roughly 50%2 . Big picture averages would place a 10% “correction” about every 2 years, which seems to indicate we are just about due, since the most recent market Shadow was cast in early 2016.
But, my suspicion is that most readers neither knew or cared how any times the S&P went down in the past 18 years, as most have enjoyed the positive returns while they put up and take down decorations, snowfall, government and day to day life. The fact is that whether it is the Morning Markets Show host wildly waving his arms as he points to a meaningless chart or the Mayor of Punxsutawney Pennsylvania lifting a rotund rodent in triumph, neither has anything with what we will do today.
So, since you asked, I can only assume that there could be another downturn at some point, just as I assume that spring will come. But if the investor doesn’t go to the Dark Side and panics out of their investment, they are not materially impacted. If you want to know more about market declines or Ground Day, I patiently await your call.
Bryan Trible, CLU, CRPC