Review: WSJ 2007 Forecasts



Last year, I participated in the WSJ forecasts. Given the typical Wall Street cheerleading, I (per usual) was the most bearish person on the list.

As chance would have it, our forecasts were eerily accurate. Here are the forecasts from 2007 and the actual year end numbers:

2007 Forecasts

DJIA: 13250;
S&P 500:
Nasdaq: 2650;
Russell 2000: 825
10-year yield: 3.95%

2007 Actual

DJIA:  13264.82
S&P 500: 1468.36
Nasdaq: 2652.28
Russell 2000:  766.03
10-year yield: 4.03 %

Having done these forecasts for a few years now, watching the outcome over the final few days of the year reminds one how near totally random the final outcome is. As the final few days go by, the leaderboard changes day to day, almost arbitrarily. In golf, its mostly skill (with a little luck). Here that formula is reversed — a little skill keeps you in the game, but the final outcome is based on chance.

Several commentators made observations regarding these results. Here’s some very kind words via Dow Jones:

“He who lives by the crystal ball soon learns to eat ground glass,” observed the late economist Edgar Fiedler.

From the time of Cassandra through Abby Joseph Cohen, the forecasting business has never been an easy one and 2007 was no exception for financial markets. In such tumultuous years, the result is often that a few people come out looking very smart and many more are forced to eat their words.

Of course, the best way to avoid a transformation from a seer to a seersucker is to remember the adage that one should never mention a prediction and a date in the same sentence. Strategists and economists who are expected to make annual picks and index targets enjoy no such luxury, but investors are fairly forgiving. So, without further ado, let’s review the good, the bad and the ugly of 2007 and peek at 2008 . . .

Be that as it may, kudos are still in order for a strategist who hit the bull’s eye in 2007. Barry Ritholtz came eerily close to guessing the year-end S&P 500, Dow Jones Industrial Average and 10-year Treasury note’s yield on the nose at 1475, 13250 and 3.975%, respectively, and also managed to pick the best-performing large stock of the year, Mosaic Co. (MOS), which rose 336% . . .”

As I said, it is mostly dumb luck as to the final numbers.


See also From Worst to First Second: Business Week Forecast 2007






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