Stock Market Forecasts—Helpful or Harmful?

Key Takeaways

It often happens at the start of a new year. Headlines fill with predictions about what the markets or a particular stock will do. How should you view these market forecasts? Financial consultants Trey Byrd, Josh Freeborn and Duo Tran share three tips to help you keep perspective when predictions for a new year, or any time, ring in.

1. Understand the Nature of Stock Market Forecasts

You can find stock market forecasts just about anywhere, from watching nonfinancial and financial news to all over your social media feeds. How accurate are stock forecasts? And should you listen? A key to the answers is understanding what you’re hearing and from whom.

Josh agrees and says it’s essential to understand who’s the author of the prediction. “Are they selling a book or trying to make a name for themselves? You may ask yourself, what’s in it for them?”

It can be challenging to know who the reliable stock market “experts” are. Our consultants say if you’re unsure, go to the source of the financial information and review it yourself. They suggest examining government websites, such as articles from the Federal Reserve or data and statistics agencies like the U.S. Bureau of Labor Statistics.

Another source may be the financial companies you work with (and have already chosen to trust with your money).

Are Stock Market Forecasts Mostly Accurate?

The track record for market forecasts has historically not been very successful. Forecasters use historical data to make informed decisions about what may happen in the future. However, that’s also the problem. Predicting the future means dealing with a lot of uncertainties, because no one really can.

Perspective vs. Prediction

Nearly all financial companies provide outlooks and market commentary for their clients. How is that different from forecasts you hear in the news? For the most part, your financial company offers education and points of view, so clients understand who’s managing their money and how.

American Century Investments’ chief investment officers (CIOs) do the same every quarter, but it’s not a crystal ball, nor is it marching orders for you. Investment Outlook aims to educate investors about our teams’ perspectives based on economic trends, world events and scads of market data. The CIOs may also tell you where their teams are looking for opportunities for the strategies they manage and why. It’s part of helping you understand their rigorous process to actively manage those portfolios.

Can it help investors get ideas for their portfolios? Yes, but they still need to weigh them against their own goals.

2. If You Listen to Financial Forecasts, Don’t Act

The good news about some market forecasts is that they can be informative. There’s nothing inherently wrong about hearing different perspectives—from Wall Street analysts to a local financial sage. However, making investment decisions based on predictions should be treated with caution, especially without knowing if a particular decision suits you.

How can you avoid reacting? “Keep a long-term view of your investments,” says Trey. “And make sure you stay diversified.” Diversification provides a wide range of investments that don’t all respond the same way during market events. This strategy can help manage risks in your portfolio.

Our consultants understand that a long-term perspective can be challenging if you think you might miss an opportunity or fear losing money. The barometer is knowing whether the action you want to take aligns with your goals and risk tolerance. All agree that “stay the course” may be some of the most difficult words for an investor to hear.

The Benefits of Not Reacting

Refusing to react to news and market predictions may help you avoid hasty decisions with long-term consequences. Our consultants know people who chose to act at the wrong time and have long-term regrets.

“A couple of years ago, some people moved to fixed annuities because of inflation fears,” says Duo. “Of course, everywhere you turned, it was all bad news, and I can understand wanting to make a change. But in doing so, they missed out on the rally that occurred at the end of 2023.”

Josh says it was the same in 2008. “So many people were hearing about the doom and gloom that they got scared and moved to cash. Unfortunately, they missed out on the rebound that came later. I have clients who still regret those decisions years later.”

Consider Talking to a Consultant

If you’re tempted to make snap decisions based on headlines or predictions, our consultants say to talk to someone first. “Talking it over with an advisor can help you refocus on what you’re trying to achieve versus what you’re hearing in the news,” says Duo.

“I start by asking clients what they’re trying to fix,” says Josh. “From there, we can get to the heart of what prompted them to call.” When you revisit your goals and the original reasons you chose to invest, it can help you keep perspective.

Tune It Out

Another suggestion is to remove yourself from the noise and seek out a professional opinion.

Avoiding financial news and forecasts can be difficult to do these days. News, data and opinions come at us from so many places that can be hard to ignore. A better option may be to talk to an advisor to help you focus on your goals.

3. Choose a Plan Over Stock Market Predictions

A final tip from our consultants is to have a financial plan and choose to stick to it rather than being swayed by today’s market forecasts or predictions you hear from financial media.

“If you have a good financial plan, it doesn’t matter what the talking heads say,” says Duo. Musts for your plan? Make sure that your investments match how much risk you’re realistically willing to take and your portfolio is appropriately diversified.

A plan can also help you stay consistent with your investments and may help you tune out the extra noise from headlines. “A financial plan can help give you confidence because you know you went through the steps of figuring out your goals and which investments are the right ones for what you want to achieve,” says Trey.

Should Your Plan Change—Ever?

Once you have a solid plan, don’t second guess it or yourself, say our consultants. But that doesn’t mean your plan is set in stone. There are reasons to change a plan, but they have nothing to do with stock market predictions. They’re about what you’re experiencing in life.

“Clients may want to make changes when they’re faced with something new, such as a big expense to plan for, or if they want to minimize the impacts of taxes as they get closer to retirement,” says Duo.

How do you make a financial plan work in your favor? Trey says, “First, you actually need the plan. If people don’t know where to start, that’s what we’re here for.”