Today’s blog post is written by Withum Wealth Management’s Investment Advisor, Austin Hagaman, CFP, AWMA.
Every year Barron’s, a widely respected financial news publication, interviews Wall Street’s “Top” Investment Strategists regarding their thoughts on the year ahead. Included in this article is a section where Barron’s asks each strategist to forecast which sectors they think will perform the best and worst over the coming year. Barron’s published their “2017 Outlook” on December 19, 2016.
Now that we are a little more than half way through 2017, I think it is fitting to check in on how Barron’s “Top” Wall Street strategists are doing. Spoiler alert: At this point, they don’t deserve much more than a participation trophy (which, for the record, I am firmly against).
To evaluate Barron’s “Top” Wall Street strategists I calculated their consensus forecast for each sector by totaling the number of positive and negative forecasts issued in the article. You will see from the chart below that Financials was predicted to be the favorite in 2017 with eight of the Wall Street strategists giving the sector positive reviews and none of the strategists listing it as a sector to “avoid”. Consumer Staples found itself at the bottom of the list earning an almost unanimous “avoid” recommendation.
To measure the Wall Street strategists forecasting abilities, I simply compared the top three best performing sectors in the first half of the year to the strategists’ top three most favored sectors. As you can see in the charts below, thus far it has been a questionable year for Barron’s “Top” Wall Street strategists. Only one of the strategists’ three most favored sectors, Health Care, was a top performer in the first half. Financials, the sector the Wall Street strategists favored the most, turned out to be one of the worst performing, underperforming both the S&P 500 and 7 out of the other 9 sectors in the index. Consumer Discretionary also looks to be defying the strategists’ expectations. Their forecast called investors to “avoid” Consumer Discretionary, one of the best performing sectors in the first two quarters Lastly, the Industrial sector seems to be holding strong—albeit marginally—for the strategists. Industrials was their third most loved sector and it is currently outpacing the S&P 500 by 0.20%.
To be fair, we are only about half way through 2017. A lot can happen over the next couple of months that could shed a better light on the strategists’ forecasting abilities. But how does their performance in the first six months of 2017 compare years past? According to Fritz Meyer, an independent economist who runs a very similar annual assessment, the strategists don’t have a great track record. Meyer notes that since beginning his study in 2005 there has not been one year where the strategists have outperformed the S&P 500. Meyer writes in a blog, “The predictions of Wall Street’s so-called “top” strategists’ are about as reliable at sector forecasting as monkeys throwing darts.”
There were two thoughts that came to mind when I assembled and assessed the data for this piece:
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