Preseason Predictions vs. Market Predictions

School is back in session! Summer is winding down, kids are starting fall sports and joining clubs and soon (hopefully) the weather will be cooling down. To some this means one thing, football season is here! Whether you’re a fan of the NFL or cheer on your alma mater, the past few months have been filled with practice reports, rumors and predictions. The beginning of each season represents a clean slate. Some teams may be filled with new faces, while others are complete with proven veterans. Nevertheless, this doesn’t stop fans and analysts from making bold prognostications of what each team will do – whether these predictions are based on last seasons performance or in hopes that new players will bring new success.

While analysts’ predictions are based off hours of research, they can be altered in a matter of moments once the season starts. A quick search for 2017 NFL predictions and you’ll find plenty of analysts who would be eating crow right about now. The Browns winning 5 games? I don’t think so. The eventual Super Bowl winning Philadelphia Eagles not making the playoffs? Are you crazy? It’s easy to say that now, but it’s not that these analysts are clueless. These predictions are subject to a multitude of factors having to pan out exactly right. Injuries can devastate seasons; breakout stars can turn teams around and unexpected weather can alter outcomes of games. If these factors don’t occur the way the analyst expected, their predictions obviously won’t be accurate.

Just like in football, there are no shortage of predictions every year about the stock market. Trying to predict a short-term outcome has historically proven to be extremely difficult. As evidence, the performance of the stock market through June has mostly underwhelmed analysts’ expectations. However, July represented a strong start to the second half of 2018 even in the face of “trade wars” and Iranian sanctions leading to volatile oil prices. So what do the markets potentially have in store for the remainder of the year?

Investors may worry when they begin to see headlines with grim predictions and “recession indicators” but this market cycle has been resilient for several years now, shaking off a European debt crisis, a crash in oil prices, America’s credit rating downgrade and most recently, trade wars. In addition, the second quarter earnings season just ended and was extremely positive. According to BlackRock, almost 80% of the companies in the MSCI USA Index raised their guidance for earnings, sales or both this year. Recently, the Fed upgraded its economic outlook from “solid” to “strong” during its monthly FOMC meeting in July, consumer spending is increasing and inflation remains around historic lows.

All these things would suggest a relatively strong second half and thus a positive ending to the stock market in 2018. However, just like football, each market cycle is different; trying to make predictions dependent upon a multitude of factors is difficult. So we hope the markets follow the underlying strong fundamentals but if not, just remember as your fiduciary, we have planned for the unexpected injuries and inclement weather.

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