Wall Street experts are predicting where the S&P 500 will close at the end of the next calendar year. Why shouldn't I do the same?
You might argue that I have no idea where the market is going, and you're right. But what now? Nobody else knows either, and that has never stopped Wall Street.
The professional strategists spit out numbers in an absurd annual ritual. These forecasts are almost always wrong. If they're right, it's just a coincidence.
I guess I have as good a chance of being accidentally right as anyone else.
Without claiming accuracy, I predict the S&P 500 will fall 16 percent next year.
There are many reasons to be worried about the stock market – including tariffs, stock valuations and signs of euphoria over artificial intelligence. However, there are also strong factors supporting the market, such as momentum driving prices higher and strong corporate earnings.
Which side will dominate in 2026? We'll find out after we experience it.
However, I have an important piece of advice: whatever you do, please don't trust my wrong prediction.
Bad for business
Unlike me, Wall Street is consistently bullish – which, not coincidentally, makes it much easier to get people to trade stocks.
Consider this. If a confident stockbroker told you that the market would go down next year, you might not be eager to buy and sell stocks, options and futures contracts – all of which generate profits for investment houses.
Wall Street's marquee stock and investment banks – such as Goldman Sachs, Bank of America and Morgan Stanley – do not warn that their forecasts are unpredictable, as I did. They present elegant presentations, promoting the illusion of being clairvoyant.
In fact, their forecast record is absurd.
Paul Hickey, founder of Bespoke Investment Group, has been putting together these predictions for years. He found that the Wall Street consensus has only ever forecast annual profits since December 31, 2000 – every single year.
Of course, the market hasn't gone up every year. In 2022, for example, the S&P 500 fell 19.4 percent. The consensus forecast called for an increase of 3.9 percent – a difference of 23.3 percentage points. Overall, the S&P 500 fell in seven out of 25 calendar years through 2024, i.e. in 28 percent of the cases. The losses were sometimes gigantic, such as the 38.5 percent crash in 2008.
If you only look at the overall averages, you may not realize how ridiculously bad the professional stock forecasts really are. The average annual price appreciation forecast for this entire period was 8.9 percent, not far from the S&P 500's actual average performance of 7.7 percent per year.
However, because the consensus was positive in all the bad years and many of the good years were far better than the consensus predicted, Wall Street forecasts were off by an average of 14.1 percentage points annually. In other words: On average, the error was more than 50 percent larger than predicted.
The errors were so large that it was thought to be predicting warm, sunny weather before a major snowstorm arrived.
I want to be kinder to forecasters this year, now that I've made a prediction myself. But unfortunately, I would compare Wall Street's average forecast to my own tennis serve. I often hit the ball too long or too short; too far left or right. You could say that on average my serve is almost perfect. However, it would be more accurate to say that there is significant room for improvement.
Try some tenderness
The consensus is that the S&P 500 will rise 11 percent in 2026, Mr. Hickey noted. So far, no one in the survey is predicting a market decline.
That's mainly why I predict one thing. I don't work on Wall Street. I don't belong to the herd.
Still, I readily admit that Wall Street strategists are an elite group. They are generally intelligent, educated and well-informed people. Even if their reports do not deserve the name forecasts, they often contain valuable insights into economics, politics and financial markets.
For the past few years, I've simply ridiculed the people who embarked on this futile effort. If they weren't so highly paid – and weren't misleading investors – I might feel sorry for them. After all, part of their job is to make predictions. It can't be good for the soul to tell the world what the future will be only to be proven wrong year after year.
I tried to put myself in their shoes this year, with the help of Mr. Hickey. I imagined that I was working on Wall Street, that I liked my fat bonus and wanted to keep it. In this case, I would have to make a positive forecast for 2026 and not the negative one I came up with.
On the one hand, I would be expected to have an optimistic outlook. Furthermore, since 2000, being positive has been true about two-thirds of the time – at least towards it.
During these positive years, the S&P 500 rose more than 16 percent, Hickey said. In bad years it fell by almost 16 percent. The annual performance was “almost binary,” he said in a phone call.
When making an annual forecast, he said: “I would probably first decide whether I wanted to say the market was going to go up or down.” Since the number has increased this year, one can assume that this will continue to be the case, he said. If we stick with that assumption, he said, why not predict a big increase of 16 percent or more? This could help me win the favor of my bosses on Wall Street.
He hastened to add that there are also many reasons to believe the market would go down – reasons that I have pointed out all year and that I will expand on in future columns. Mr. Hickey and I were in complete agreement on one thing: neither of us had any idea how the market would develop in 2026.
Still, I had to be positive and confident in my role as an exemplary Wall Street analyst. The safest approach would be to stick with something close to the actual average performance, so an increase of around 7 or 8 percent per year.
But if I really wanted to stand out as an independent personality, I would find out what everyone else was doing and be really contrarian. That's what I decided to do in this column.
The two well-known strategists Byron Wien and Laszlo Birinyi, who both died in 2023, are also pursuing this in a weaker form. For decades they regularly made market forecasts that made headlines.
In 2011, I spoke to both of them about why they stuck to their prognosis. Mr. Vienna, who completely ignored the 2008 crash in his annual forecast, simply shrugged off this failure. He told me that he knew he was unable to predict the future. It was enough, he said, just to be “interesting.”
Similarly, Mr Birinyi, who also missed the 2008 crash but managed to predict the 2009 market recovery, said he was just trying to provoke. Each of his predictions, he said, should be understood only as an “argument” – one that people would have to evaluate for themselves.
My prediction is also intended as a provocative argument. I'm not saying the market will shrink in 2026. How should I know that? My opinion is that it is best to ignore forecasts completely and invest anyway.
It is inherently risky to invest your money without being absolutely sure of the outcome. But since the economy will likely continue to grow in the long run and ultimately reward people who buy stocks in profitable companies, investing in the stock market makes sense for those with a long-term horizon. Hedge your risks by holding low-cost, well-diversified index funds as well as an appropriate amount of high-quality bonds for safety.
If you are retired, your horizons are limited for some reason, or you value security for other reasons, you may want to emphasize bonds and dramatically reduce your stock investments or avoid the stock market altogether.
I'll be back next year with more thoughts on the markets.
In the meantime, hope for the best, but beware of unreliable forecasts.