Barron’s can’t find any equity bears for 2015.
We can’t either.
But here’s the thing: both Business Insider and Barron’s are highlighting the S&P 500 outlooks of equity strategists at major Wall Street firms.
When I tweeted out Josh Brown’s write up on Barron’s 2015 forecasts, there were some comments to the effect of, “Well, not if Barron’s had asked me!”
Great. But they didn’t ask you. They asked strategists from firms like Bank of America Merrill Lynch and Goldman Sachs.
And here’s the thing to keep in mind about the role these folks serve at their various firms: these are the people who attend major client meetings, who meet with the media, who go on CNBC, who represent what is considered the “house view” on the S&P 500.
On Twitter, I got trapped in a canoe with my editors Sam Ro and Henry Blodget, as well as Josh Brown and The Motley Fool’s Morgan Housel after Morgan asked if Barron’s “couldn’t find” any bearish strategists or “didn’t ask” any.
(Footnote: Twitter canoes, or threaded conversations that you keep getting “@ mentioned” in but might no longer be participating in, are just the absolute worst. But if I had to get stuck in one, this is a fine group. The other problem: there is no unified link I can share to show you the whole threaded conversation.)
The question has an interesting answer, but here’s the key observation from Josh:
And this is, by far, the most important thing to keep in mind when writing, or thinking, or commenting on the 2015 outlooks people are talking about: who is making this call?
When we’re talking about equity strategists from major Wall Street firms, again, remember that we’re talking about folks who attend the most important meetings, who make the most public appearances, the folks who represent the entire firm.
And so yes, of course there are people who exist that think the stock market will go down in 2015, even the whole maths thing (if there are 6 billion people then at least one will think X) notwithstanding.
But among the biggest firms, the house view is that the stock market is going higher in 2015.
You can take this any way you want.
Henry is taking the under.
Others might say Wall Street isn’t being nearly bullish enough.
Others will say this consensus is the sure sign of a market top and disaster will ensue in 2015 (like kind of happened in the Treasury market this year).
But no matter what you think about it, I can’t stress enough how important it is to consider the source and context of these forecasts: the “house view” among major Wall Street firms is that stocks are going higher next year.
A few weeks ago on Ello, Bloomberg’s Matt Boesler highlighted the following comment from Atlanta Fed Research Director David Altig:
“Monetary policy is an exercise in risk management. Here is the probability of being wrong: 100 per cent. The question is what is the worst way to be wrong.”
And I think this applies to economic forecasting, equity market forecasting, even weather forecasting. It probably applies to all forecasting.
We cannot, and never will, know the future.
But if we’re compelled to try for various reasons — the newscast needs a weather forecast, our clients need a stock market forecast — then it behooves us as interpreters and digesters of these forecasts to consider the source, the process, and the very simple “why” of the forecast we’re looking at.
Not that this makes it any easier — nor is it supposed to.