While often missing the proverbial dart board, Wall Street analysts’ 12-month forecasts underrepresent the downside risk of stocks. None of the median forecasts—and just 13 of the 198 underlying forecasts in our sample, or less than 7%—anticipated falling share prices.
As it turned out, stocks declined in three of the 12 years and were flat in a fourth year. Such outcomes should not surprise investors, let alone Wall Street analysts, because stock prices have fallen roughly 25% of the time over the longer term. The S&P 500 Index recorded negative total returns in 26 of the 97 calendar years starting in 1926.
The few declines that analysts envisioned were modest to a fault. The largest forecast was just –7.7%. Stocks fell roughly three times as much in 2022, and the index’s 26 calendar-year losses since 1926 averaged –13%.
So much for one-year stock-price forecasts.