BYRON WIEN: I've Been On Wall Street For Half A Century And One Thing About Forecasting Has Never Changed
"We have reached that time in the year where everyone is speculating about the prospects for equities in the year ahead," Wien wrote in his latest monthly market commentary. "As usual the consensus is that the market will be up 10% in 2014."
"I have been an observer of strategists' estimates for half a century and I can tell you that as a group they always think the market will be up 10% in the following year whether stocks were up 20% or down 20% in the previous year," he added.
Wien says that market watchers are neglecting the apparent risks and the possibility of a "fat tail." At the same time, Wien admits that 2014 could be a strong year. From his note:
...What nobody seems to be talking about is the possibility of a "fat tail." With the uncertainties surrounding Obama's Affordable Care Act, and the risks of the initiatives in Syria and Iran taking a turn for the worse, profit margins peaking and earnings falling short, the downside is certainly not out of the question. As for the positives, the tone of economies around the world is improving, individuals are coming back into the equity market, share buy-backs continue, merger and acquisition activity is picking up, growth in Europe is getting better, the decline in oil prices increasing consumer purchasing power and interest rates are likely to stay low because of a reduction in bond offerings. This could produce another year of strong stock market gains. At this point I don't know which of the "fat tails" is more likely. While investor optimism is approaching extreme levels on the positive side, which is a warning signal, stocks don't appear to be melting up yet. I just have a feeling that 10% appreciation won't be the number at year-end 2014.
It's worth noting that Wien was way off on his 2013 call for the S&P 500 to drop to 1300, but his summary is nonetheless interesting.