As you may have gathered by now, I am a little sceptical of financial market forecasts. That does not mean, however, that the formation of expectations is not a fascinating subject. Towards the end of 2024 I ran a survey of 276 finance professionals to uncover their thoughts on the year ahead.

I posed ten questions, and here is how they responded:

Question 1 – US Equity Market Returns

Expectations are for a positive but more subdued 12 months for US equities with a mean return of 6.5% and median of 7.0%. Although these seem quite prudent predictions, and broadly consistent with long-run equity returns, performance of this nature has become quite unusual. Since 1965 calendar year returns for the US market above 27% are more common (12) than returns between 3% and 12% (11).

Question 2 – Small Cap Revival

Hopes abound for a resurgence in US smaller companies, which have been out of favour for a considerable period of time. Since 1979 the Russell 2000 has outperformed the S&P 500 in 48% of calendar years, but has trailed its larger counterpart in eight of the last 10.

Question 3 – US Exceptionalism

Although confidence in the continuation of US equity outperformance is unsurprising, it is hedged (at least a little) with some contrarian, value calls on a Chinese recovery. UK, Europe and Japan remain in the doldrums.

Question 4: Recession Risk

Recessions are notoriously hard to predict, most experts struggle to do it even when we are in one. The mean response in the survey is 25% (20% median), so not far off broad market consensus. But beware, in 2022 there were reports of a 100% chance that the US economy would enter a recession over the next 12 months. (Never forget Cromwell’s rule).

Question 5: The Magnificent 1

Given the respondents’ confidence in continued US equity outperformance, that 62% expect Nvidia to underperform the market is somewhat surprising. Allied with a positive view on the Russell 2000, there are perhaps hopes of a broadening out of returns – maybe it will be the fabled ‘stock picker’s market’!

Question 6: Dollar Dominance

All financial market forecasting is difficult, but currencies are undoubtedly amongst the toughest. Although many variables will impact exchange rates they are heavily influenced by inflation dynamics and interest rates – two other things people cannot predict. Reassuringly, expectations here are pretty conservative with a mean GBP:USD of 1.26.

Question 7: Bitcoin

How to predict the ultimate bubble / belief asset? Who knows? This is probably the question where the sample most markedly impacted the answers – a different group of people would likely had wildly divergent expectations. The general mood in this survey was negative with a mode of $50,000 and a median of $95,000. The mean, however, was aided by a couple of $1m predictions.

Question 8: Bear Market Risk

20% declines in US equities (the classic definition of a bear market) are pretty rare – somewhere around 15% chance in a 12 month period historically – so the 40% figure here is high, and may reflect concerns over valuations and concentration.

Question 9: US Inflation

Very few participants expect the Fed to hit their inflation target and inflation risks appear skewed to the upside – though not egregiously so. The median view was 2.9%.

Question 10: US Treasuries

Despite all the talk of fiscal challenges and inflation risks, ten year treasury yield expectations seem well-anchored. The mean was 4.2%, slightly above a 4.1% median. 20% of respondents expect the yield to finish the year above 5%, compared to 34% below 4%.

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Probably the most important part of this survey was the option for participants to receive a copy of their answers. In 12 months’ time when everything has changed we will have little hope of remembering what we were thinking and feeling about markets a year ago. This conscious or unconscious lack of ‘forecasting memory’, is one of the main reasons many of us can’t quit the habit of making investment decisions based on predictions we have little hope of getting more right than wrong. Forecasting should be for fun only!

I will be back this time next year to see how we did.

Thank you to those who participated.

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My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).