RZH Insights – Market Predictions vs. Reality: What You Need to Know
It’s prediction season again and many of the largest banks on Wall Street have come out with their 2025 stock market forecasts. Recently, Goldman Sachs made a bold prediction: the S&P 500 would deliver just a 3% annual return over the next decade1. Considering that historical returns have averaged closer to 11% since 19452, this forecast has come as a surprise and led investors to wonder what this might mean for their portfolios.
Before reacting to such projections, it’s crucial to take a step back. Financial forecasts, even from well-known Wall Street institutions, are far from crystal balls. Why? Because they’re based on a mix of current data and future assumptions, which are largely unpredictable and ever-changing.
Let’s explore why financial forecasts are often unreliable, the motivations behind these predictions, and, most importantly, how to stay focused on what truly matters for your financial future.
Why Financial Forecasts Are Often Unreliable
Forecasters – even the largest, most recognizable investment banks – base their predictions on data available today, combined with assumptions regarding future economic trends, interest rates, corporate earnings, and global events. If history has shown us anything, it’s that the world economy and financial markets can change quickly and dramatically, often in ways that are impossible to foresee.
Take a moment to think about it: Did anyone see the pandemic coming? Or the tech boom that followed? And these are just a couple of examples from the recent past. Nobody, not even the best minds in finance, with vast resources at their disposal, can account for every twist and turn in a dynamic global economy. Goldman Sachs’ current projection might accurately reflect today’s landscape…although even this is debatable…, but in a decade, a year, or even a month, the landscape may be vastly, and unforeseeably, different. (Pre-COVID everyone knew AI was in development, but few predicted its impact, adoption, and success. Two years ago, no one had even heard of ChatGPT. In February 2020, Nvidia stock (a maker of chips for the AI industry) traded around $5 per share; as of year-end 2024, it traded around $134, up almost 27x.)3
Each year, major banks release forecasts for the annual return of the S&P 500 Index. However, these predictions often miss the mark, resembling more of a dart-throwing exercise than precise analysis. Over the last 7 years, the median forecast return for the S&P 500 from twenty of the largest banks and asset managers has not even been within 10% of actual returns, with forecasts ranging from underestimations of 26% to overestimations of 21%.4
In 2024, major banks projected S&P 500 returns ranging from -12% to +13%, with a median estimate of 2.2%. However, the actual return for the year was 25.02%. 4,5 The closest prediction underestimated the real outcome by nearly half, while the most inaccurate forecast missed the mark by a staggering 37%.4 If you had based your investment decisions on these projections, your portfolio’s performance could have been drastically different, highlighting the risks of relying on such forecasts.
The Motivations Behind Forecasts
“Asset bubbles and the desperate search for profits amid negative rates aren’t laughing matters.
Be afraid.” 6
-Bloomberg, 2019
This quote comes from an article published on December 19, 2019. Since then, the S&P 500 Index has risen by over 100%.5 It’s essential to recognize the incentives behind financial predictions and headlines such as the one above. Analysts and financial publications aim to generate clicks and engagement, not necessarily to provide accurate predictions. Articles titled “No One Knows How the S&P 500 Will Perform This Year” are less likely to attract attention compared to bold, specific forecasts.
Some forecasters employ a strategy of making multiple, widely varying predictions. This approach allows them to highlight whichever prediction comes closest to reality while ignoring the others.
In fact, a few weeks after Goldman Sachs made their prediction that the market would return 3% annually over the next decade, their chief US equity strategist, David Kostin, forecast that the S&P 500 would hit 6,500 by the end of 2025.7 This represents about a 10.5% gain from December 31, 2024 values. It would be difficult for this prediction and the original 3% prediction to both be accurate.
Focus on Long-Term Strategy, Not Short-Term Forecasts
Instead of trying to adjust your portfolio for every prediction, we remind clients to focus on what you can control:
1. Your Investment Goals: Set clear, achievable objectives based on your needs, not market conditions.
2. Your Time Horizon: Remember, time is the market’s greatest equalizer. The longer you stay invested, the more you can benefit from compounding returns.
3. Diversification: Build a diversified portfolio that spreads risk across different asset classes, sectors, and geographies. This cushions you from the impacts of any single market forecast or downturn.
4. Discipline: Sticking to your financial plan by following time tested strategies and investment management principles during times of maximum uncertainty.
5. Patience: Tolerating interim volatility allowing markets to complete their full cycle. This allows different asset classes to benefit from historical performance patterns. RZH maintains sufficient levels of cash and bonds to meet your needs so you will never be a “forced seller” in an unsavory stock market period.
Stay Disciplined
Today we are constantly bombarded with new information telling us our current financial environment is “unprecedented”8 and questioning “What if this time is different?”9
When you encounter the latest forecast or catchy headline, remember: while analyst market predictions may change, a well-crafted investment strategy should not be altered to accommodate them. By sticking to a long-term, disciplined approach, you can build wealth without the stress of trying to predict where the market will go next. Our goal is to help you enjoy life to the fullest, knowing you have a plan that makes any headline or sensationalist prediction irrelevant to your financial future.
Best regards,
Brendan McEwan, CFP®, CIMA®
Senior Financial Advisor
[1] Global Strategy Paper. Goldman Sachs, October 18, 2024.
[2] “S&P 500 Average Returns and Historical Performance.” Investopedia. December 26, 2024.
[3] “NVIDIA Corporation.” Yahoo! Finance. NVDA Stock Prince February 25, 2020 – February 25, 2025.
[4] “Taking a Holistic View of Your Investment Journey.” Avantis Investors. November 2023.
[5] YCharts.
[6] “A Funny Thing Happened on the Way to the Stock Market Record.” Bloomberg. December 19, 2019.
[7] “Here’s where the stock market is headed in 2025, according to Wall Street’s top strategists.” CNBC. December 13, 2024.
[8] “For Investors, What if This Time is Different?”. New York Times. October 27, 2024.
[9] ‘We are in an unprecedented era of inflation’: Financial confidence drops throughout the U.S., experts say. WIFR. February 20, 2025.