Late in 2022 the strategy team at Goldman Sachs Research released their forecast for the U.S. stock market in 2023.1 Based on what had happened the year before and on where the economy appeared to be headed, it seemed to be perfectly reasonable. "Zero earnings growth will drive zero appreciation in the stock market," wrote David Kostin, chief U.S. equity strategist. As we can all attest, 2022 was not a good year for stock growth. The S&P 500 index (a common proxy for the US stock market as a whole) lost more than 19% of its value.2 So, by comparison, the prediction of the Goldman Sachs team was good news. Our investments wouldn't gain much in the coming year, but at least we could expect the double-digit losses to stop. The whole point of a forecast is to enable you to take action ahead of time so you can avoid or at least mitigate the negative effects of some future event. For example, when the weather forecast calls for rain tomorrow, you set your umbrella by the door. In the same way, the Goldman Sachs forecasters made recommendations about where to find growth as the market as a whole was expected to stagnate. "Our strategists favor stocks that aren't as sensitive to interest rates," they wrote, "like companies in healthcare, consumer staples, and energy." That could seem like excellent sounding advice. It's based on extensive past data, analyzed by industry experts, and it gives specific recommendations. So, what would have happened to you if you had taken Goldman Sachs' 2023 forecast as a forgone conclusion? First of all, you might have moved money out of diverse funds that tracked the market overall and concentrated it into sectors that the “experts” (and common sense) said were going to outperform: healthcare, consumer staples, and energy. In hindsight, how would you have done? Let's see what the financial press was saying at the end of 2023. "Things could hardly have gone worse for healthcare investors in 2023." Barrons3 "Consumer staples is the S&P 500's second worst performing sector in 2023." Morningstar4 "Energy stock performance lagged that of the broader stock market in 2023." U.S. Bank report5 On the other hand, the market as a whole outperformed the forecast's expectations. The S&P 500 index returned roughly 26% for the year.6 If you had been expecting four percent growth, you would have been off by a factor of six. The whole point of checking up on last year's forecasts isn't to feel superior because the experts got it wrong. The point is remember that, no matter their credentials, nobody knows what the stock market will do tomorrow, next quarter, or next year. Accepting this, the prudent investor will pursue a diverse strategy that seeks to capture gains, mitigate losses, and reach the desired goals over the long-term. It's a strategy that frees you from the anxiety of responding correctly to every short-term trend. If you have questions or concerns about what 2024 and beyond hold for your investment strategy, be sure to talk to your trusted advisor.
Sources:1. http://go.pardot.com/e/91522/elT36/94c3fx/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb42. http://go.pardot.com/e/91522/ilmow/94c3g1/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb43. http://go.pardot.com/e/91522/cBEFL/94c3g4/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb44. http://go.pardot.com/e/91522/hABGM/94c3g7/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb45. http://go.pardot.com/e/91522/nEJK4/94c3gb/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb46. http://go.pardot.com/e/91522/dhlqU/94c3gf/2165953362/h/vXvnYZj3iokd5xZlc0B6Yr0jGBoMCxw6CSIIKt4xdb4Disclosure:The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.