Don’t listen to Wall Street if you want to know what markets will do in 2025

It’s that time of year again when Wall Street strategists and pundits alike dust off their crystal balls. Strategists at top firms like JP Morgan, Citibank, and Morgan Stanley are among the best-paid professionals in finance, often commanding seven-figure salaries. 

For 2025, the consensus prediction for the S&P 500 price return is 10.6%. With every conceivable piece of data at their fingertips, you might assume their annual market forecasts would be reasonably accurate. Not so fast…

The chart below shows the annual consensus S&P 500 index return forecasts from 2000 to 2024 (in red), alongside the actual realised return (in blue).

What immediately stands out is that strategists’ overall track record is atrocious.

During the bear market of 2000-2002, strategists predicted a cumulative return of +42%. The actual return was -40%. In 2008, strategists expected an above trend 12.5%. The global financial crisis had different plans, and the market returned -38%. 

In the last two years, strategists forecasted a modest 2% return, while the realised return was an astonishing 53%.

How Bad Are These Predictions?

To delve deeper, we analysed the statistical relationship between strategists’ predicted returns and the actual returns over each calendar year. 

Amazingly, there is a negative correlation between their predictions and the market’s realised performance. What does this mean? Not only would you have been better off if you had ignored Wall Street’s best and brightest, you would have fared even better by doing the opposite of what they suggested! 

For every one percentage point increase in predicted returns, the actual returns were 1.2 percentage point lower.

Further, the narrow range of consensus forecasts reveals a lack of conviction—perhaps for good reason. The lowest annual return forecast is 1%, while the highest is 22%. Compare this to the actual range of outcomes, which spans from -38% to +30%. 

Clearly, the market is far more volatile and unpredictable than Wall Street likes to admit.

Consensus return forecasts for the S&P/ASX 200 are harder to come by, so we constructed a workaround, taking the target prices for each stock from the analysts and aggregating them to give an index level projection. This resulted in a 5.1 per cent price return forecast. Of note, the consensus price target for Commonwealth Bank is a bold $106, compared to today’s $158 price. Because CBA’s benchmark weight is so large - 10.6 per cent – the -33% return depresses the expected index return by a massive 3.5%.

Why is prediction so difficult?

None of this is to say that Wall Street strategists lack talent. Many of these individuals are extraordinarily skilled. However, timing the market remains one of the most challenging feats in finance. 

The future is a mist-covered mountain—every step forward reveals new terrain, but the summit always hides just beyond the clouds. That is to say, the forces that will shape market returns like financial crises, geopolitical fractures, and technological leaps are yet to be revealed.

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We try to avoid being swayed by seductive narratives and enticing forecasts about market direction. Instead, we focus on the more mundane yet achievable task of finding the best companies to hold long and the worst companies hold short.

By steering clear of speculative market predictions, we aim to deliver consistent and reliable results for our investors.

In 2025, as in every year, the lesson is clear: don’t waste time trying to divine the market’s next move. Instead, concentrate on what you can control—identifying quality investments and managing risk. Let Wall Street keep its crystal balls; we’ll stick to sound investment principles.

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Dr David Allen is Plato Investment Management's head of long/short strategies and portfolio manager of the Plato Global Alpha Fund. 

Click here to learn more about the Fund and view latest performance reports.

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