Auter, Auter!

 

Predictions are difficult. Yes, particularly when they concern the future, writes Jon Auters on Bloomberg.

Wall Street’s strategists all have been forced to raise their targets after a first half rally that took most everyone by surprise. Not surprisingly, there’s a lot of derision out there. 

The problem with the annual round of year-end predictions is that it’s impossible to call a market number on a precise date in the future. What’s more useful is to work out assumptions about the world, and offer a model about how this will affect the market.

It's hard to pick - it's hard to pick for a certain date - it's hard to pick for tomorrow or next month.

If JPM looks out to three years, the exercise reveals what it calls “a dislocation of the long- and short-term view,” with historically dependable recession signals looming in a benign market environment.

That betokens a flatish equity market- and a lean-in to less risky assets - with more potential in International, and Emerging credit.

The longer you look into the past for patterns, and the longer the term ahead that you try to predict, the safer predictions become. At AllianceBernstein that published [for client key holders] Long View: Return prospects over the next decade using 100 years of data, a study that makes this point beautifully. 

Financial systems and economies tend to move in long cycles. As Bernstein notes in this fascinating treatment, economic growth in the US is steadily slowing over time, while profit growth is steadily rising. The cycles make it hard to see but the trends exist:

Looking out 10 years, bonds betoken a 3.5% return,  less than the simple model predicts for stocks, but the gap is its narrowest in a while. And, of course, bonds carry a lot less risk.

All of investing is about gauging the risks and opportunities of the future. You have to have a view.

https://www.bloomberg.com/opinion/articles/2023-07-24/market-forecasts-short-term-lack-of-method-long-term-likelihood-of-meh

https://www.jpmorgan.com/insights/research-mid-year-outlook

Buying too high is not necessarily the cardinal sin, selling out at the bottom is the cardinal sin. - Howard Marks

JP Morgan writes on the Bond front; “Even though inflation has moderated in recent months, it remains uncomfortably high, and we forecast that the Fed will be on hold through the second quarter of 2024. While rates have historically declined once the Fed goes on hold, we think the descent this time is going to be a bit more gradual than it’s been in the past,” said Jay Barry, Co-Head of U.S. Rates Strategy at J.P. Morgan. “Also, we think central bank balance sheet policy is likely to be a headwind to lower yields, while other less price-sensitive sources of demand for Treasuries should remain weak.”