Wall Street Knows Nothing More Than You Or I

If 2023 has taught investors anything so far it is, do not pay attention to the “experts” since they are more often than not, wrong.

Every year end, my firm LCM Capital Management reminds its clients to turn off CNBC as well as all banks, brokerages, economists and market strategists as they parade out in front of the TV, internet and publications with their annual predictions, or as we kindly refer to them, annual guesstimates. We have never been and never will be in the prediction business and nor should you with your money. The reason, you can be exactly right and dead wrong at the same time.

The Federal Reserve members, which consists of more than 400 PH.D economists and have every economic datapoint at their fingertips predicted in June of 2021 that they would raise interest rates 2 times in 2023. In January of 2022 (6 months later) they changed their expectations to 6-8 rate increases over the next several years. As a recap, the Fed raised rates in 2022 seven times including an unprecedented four consecutive .75 bps increases.

The result of these unexpected rate hikes, as every investor knows, was the S&P 500 (SPX) dropped almost 20% for the year. Bond funds did not escape the carnage either. According to the Barclay's U.S. Aggregate Bond Index, 2022 was the worst year for bonds since they started recording in 1976. Firms such as, JP Morgan, Goldman Sach and Citigroup just to name few all had predicted the S&P 500 would increase in 2022 anywhere from 3% to 7%.

Byron Wien, from Morgan Stanley, who according to Financial Advisor magazine is one of the most widely followed analysts on Wall Street, predicted in 2022 – “CPI will hit 4.5%,” it hit 10% and ended the year at 7.1%, he also predicted “gold will go up 20%,” gold was up 1%.

Then Northern Trust said, “market expectations for the Fed rate increase at the December 2022 meeting have only increased by 25 basis points over the last month and the 10-year Treasury yield is right in the middle of our 1.5%—2.0% forecasted range.” The 10-year yield closed the year at approximately 4%.

These are some of the perceived “best” firms and smartest people on Wall Street and yet they were all wrong. Even Federal Reserve Chair Jerome Powell cried uncle, “We now understand better how little we understand about inflation.” Not exactly a statement that exudes confidence.

But wait there is more. A plethora of publications were all saying things such as: 

• Alternatives are in and 60/40 is out – Investment News 10/2/21;
  • This week’s most-read news: Bad news for 60/40 portfolios; - Advisor Perspective Mag 10/1/21
  • The 60/40 is toast as the galactic mean reversion continues! 6/16/22 FSInvestmenst Chief Market Strategist
  • Rethink the "40" in your 60/40 – Victory Capital Management 5/2/22
  • Go Beyond the Traditional 60/40 Portfolio. Investment news 9/27/22

I think we have made our point, but in defense of these “experts”, the world today is so interconnected that it is virtually impossible to know who will sneeze next and more importantly who catches the cold.

So do yourself a favor and stop listening to the experts, strategists and economists. They know nothing more than you or I. Every investor should buy a diversified portfolio managed to their own risk tolerance and rebalance it annually. The portfolio should consist of both individual stocks and bonds and/or some index ETF’s (Exchange Traded Funds), stay away from mutual funds.