The New York Stock Exchange (NYSE) is looking toward the last FOMC meeting of 2024 next week after … [+]
It’s the end of 2024, which means it is time for 2025 market outlooks. Financial experts, economists and strategists the world over are polishing off their crystal balls, interpreting the tea leaves and looking to the stars to publish their year-ahead outlook. Being part of this ritual for many years, I find it interesting that simply making another lap around the sun seems to require an in-depth analysis of where we are going—as if the last 11 months were void of such an examination. I digress…
Regular reports, think monthly or another frequent interval, hold more water. Besides, there are more relevant things to review this year in lieu of a 2025 market outlook. I highlight an interesting data set later on, but investors should also monitor global monetary policy, which I wrote about in my last Forbes article.
Monthly, Even Weekly, Outlooks Are More Reliable
The development and publication of economic and market outlooks should be on an ongoing basis, and most firms do that. The year-ahead outlook should be no different than their usual outlook, yet authors, clients, investors and other participants tend to place more emphasis on this predictive publication. The yearly outlook should not be elevated above all others.
For example, at Fidelis Capital, we are constantly adjusting and publishing our outlook at a minimum of each month, and in some cases, weekly. Unless there are changes to our outlook during the month of December, our November outlook will look unsurprisingly similar to our December publication, which, by default, is our year-ahead outlook.
In many cases, outlooks are destined to fall short because it is difficult to accurately predict future events. No one firm or person can reliably and consistently predict the outcome of the year ahead.
Who Predicted the Pandemic and Outburst of Geopolitical Conflicts?
Outlooks are useful if events don’t significantly change, but as we have seen recently, surprises are a common occurrence. The last few years have been a good example of prognosticators missing the mark. Events such as the Covid pandemic, geopolitical upheavals, the great financial crisis and other similar events, by nature, cannot be predicted. That being said, it’s important to prepare and outline a path forward for when these events do occur.
What to Watch: Economic Policy Uncertainty Indexes
During periods of uncertainty, successful prognostication becomes more difficult. Volatility and uncertainty tend to travel together. We can measure volatility in financial markets readily, but uncertainty in fiscal and monetary policy is much more difficult to measure.
An interesting data set I came across is a series of Economic Policy Uncertainty Indexes developed by Scott R. Baker, Nick Bloom and Steven J. Davis. Their indexes seek to measure policy-related economic uncertainty by looking at a range of variables including the volume of newspaper coverage of policy uncertainty, tax-code provisions set to expire, economic forecaster disagreements, Federal Reserve surveys and other federal, state and local data. The most recent data is eye opening.
Uncertainty in U.S. trade, fiscal and monetary policy is reaching levels not collectively seen since … [+]
Uncertainty in U.S. economic policy is spiking across the board. In particular, uncertainty surrounding trade policy has driven fiscal policy uncertainty to levels not seen since 2019 and the Covid pandemic. The knock-on effects of this increase in fiscal policy uncertainty, along with inflation expectations volatility, has moved monetary policy uncertainty higher as well.
My point here is to highlight the increase in policy uncertainty and how it may lead to failed predictions in 2025 market outlooks.
The Bottom Line: 2025 Market Outlooks Are Not The Most Valuable Source of Future Guidance
The key to successful long-term investing is not the ability to forecast the future with certainty but rather the flexibility to take advantage of opportunities should things not work out as expected. Knowing that expert forecasts are just that (a forecast) and planning for uncertainty will ultimately lead to more satisfied investors in the long run.
