Beware the consensus
The world’s stock markets are in fine fettle and mere irritations like the euro zone debt crisis or a possible slowdown in the economic recovery probably won’t get in the way.
That’s the headline message from Thursday’s Reuters poll of 300 strategists, brokerages and wealth managers, including some of the world’s foremost experts on stock markets.
But before ringing your broker to scream “buy!” down the phone, there are some fairly big caveats to digest regarding this poll – not least the fact that the consensus view from our respondents has been very wrong in the recent past.
In 2008, they didn’t foresee how far major stock indexes would fall as the global financial crisis took hold (or in many cases, foresee any fall at all), nor did they predict the strength of the spectacular rally of 2009.
Also, the range of forecasts in the latest poll was conspicuously wide, signalling a high degree of uncertainty. For S&P 500 predictions at the end of 2010, our lowest forecast was 850 and the highest 1,375 – a 500 point difference. For the mid-2011 forecasts, the range was even wider at 750 points against 1,400.
But most strategists are still typically optimistic, even if major business surveys in Europe and downbeat comments from the U.S. Federal Reserve this week showed businesses and policymakers are looking ahead with apprehension.
While our poll respondents were right to single out recent robust corporate earnings as a key pillar of support for stocks, there was little mention of a nagging feeling that the global recovery will run into sand later this year as fiscal austerity measures in many Group of 20 countries bite.
If our polls have shown anything over the last couple of years, it’s that if things are going to tail off, they’ll probably tail off more than our consensus of experts usually says.