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While stocks gyrated over the summer, one market gauge remained steady as a rock: the average Wall Street forecast. As Standard & Poor's 500 index skidded like a drunk on a bender, the Street's consensus about where it would end the year hardly wavered from 1400.
Over the years, some market forecasters have been about as accurate as, well, weather forecasters. (Remember Dow 36000?) Yet there's something that amazes experts about even the more realistic prognostications: the stick-to-itiveness of many market strategists. They will occasionally revise their predictions, "but that's usually a lagging indicator," with decreases coming after a market sell-off, says Justin Walters, cofounder of the independent market-research firm Bespoke Investment Group.
Averages only tell part of the story, though, and often a lot of turf separates the bulls from the bears. Morgan Stanley predicts that the S&P 500 will finish 2011 at 1238. At the other extreme, Deutsche Bank has been holding fast to the high-end estimate of 1550.
If last year is any indication, the Street's strategists might still make a course correction. After stocks fell sharply in the summer of 2010, Deutsche Bank "fine-tuned" its estimate by slicing nearly 4 percent off the target price last September, says Binky Chadha, the bank's chief U.S. equity strategist. He doesn't rule out adjusting this year's forecast after Labor Day. Meanwhile, there's far less hedging at J.P. Morgan, which has the Street's second most optimistic outlook. Tom Lee, the firm's chief U.S. strategist, says he is confident in his 1475 forecast, as long as there isn't a major economic shock like rising inflation or renewed worries about ramifications of the Greek debt crisis.
So if the smart, well-paid strategists aren't going to change their forecasts even as the market and current events make those forecasts look ridiculous, should investors bother to listen to them in the first place? Bespoke's Walters says a contrarian investor might decide that rising forecasts indicate an overvalued market. But some financial planners ignore the Wall Street prognostications altogether. George Papadopoulos, the owner of the eponymous financial planning firm in Novi, Mich., says most stock strategists tend to be too bullish, save a few who are "perma-bears." Ignore the headline number, he says, and "focus on what you can control," like finding a good balance of stocks and bonds for your portfolio.
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