Time to Worry about the Stock Market?
If you read the headlines, listen to the news, or are an avid reader of investment research (like us), it would certainly seem so. Media and various publications have opined on market bubbles, Jerome Powell, the need to support the labor market, inflation, America’s fiscal deficit, the price of gold, softening consumer spending, and the stock market valuation. At the same time, the stock market refuses to listen and has been setting new record highs, up approximately 14% year to date as of November 14, 2025.
To make the situation worse, the government shut down has delayed and may reduce the quality and timing of some government economic data collection and reporting. Reacting to the shutdown, Fed Chair Jerome Powell acknowledged that most forecasters have little confidence in their projections — and central bankers are uncertain as to where to set short-term borrowing costs given the risks posed by a softening labor market and rising inflation.
Could there be a counter point to all the negative reporting and forecasting? Well, in a way, yes! A 2024 study from UC Berkeley's Haas School of Business found that top professional forecasters were only correct 23% of the time, despite expressing a 53% confidence in their predictions. This study covered a wide range of economic forecasts, using a survey of professional forecasters that has been in existence since 1968. The survey covers not just interest rates, but also includes unemployment, inflation and economic growth factors, and illustrates the difficulty of accurate economic prediction.
According to the study, there was no consistent direction in which the economists were wrong – some thought the economic indicators would be higher, while others thought they would be lower. In fact, it also wasn’t a function of being optimistic or pessimistic. It turned out that the forecasts were over “precise” and not flexible enough to capture the dynamic nature of our economy. The results match prior studies, such as one performed by the The Wall Street Journal on interest rate forecasts which found that most economists were not more accurate at predicting rate changes than pure chance - Journal of Finance (2007).1
Often cited reasons for poor forecasting performance:
• Unpredictable factors: A wide array of variables, including geopolitical events, interest rates, inflation, consumer confidence, and employment data, which vary in their interaction with each other.
• Shifting economic drivers: Periods of transition and disruption, like moving from low to high inflation, extreme changes in interest rates, adoption rates of technological change, and the relationship to historical models that may not apply.
• Varying time horizons: Forecasting accuracy is higher for the near-term and falls dramatically for longer timeframes. A study from the St. Louis Fed noted that beyond one quarter, the precision of forecasts falls dramatically.
So how do we, or how can you, improve the quality of decision making?
• Evaluate the costs and benefits of erring on one side or another
• Consider a range of options
• Update and/or re-evaluate your decision as new data becomes available
• Be willing to adapt to changing circumstances
• Think in terms of probability distributions as opposed to a single result
• Be aware that the “best” financial decision may not be the “right” decision in all circumstances
Despite the poor track record, forecasts are not without value. It is essential to have a point of view when constructing an investment strategy because it provides the rationale and discipline needed to make informed decisions and avoid common pitfalls – such as panic selling and fear of missing out. It also provides a benchmark for evaluating performance. Lastly, forecasts tend to be more accurate in the aggregate.
In our planning and investment work, we strive to incorporate all points noted above. Conversations within our Investment Committee, our management teams, our planning teammates, and with clients provide a framework for aligning our investment selection, portfolio construction, and financial planning across the company and for a client’s specific financial situation.
When the headlines leave you feeling fearful - a call, a conversation and an assessment of how your personal financial situation relates to those headlines should be high on your priority list.
1Karlyn Mitchell, Douglas K. Pearce,
Professional forecasts of interest rates and exchange rates: Evidence from the Wall Street Journal’s panel of economists, Journal of Macroeconomics, Volume 29, Issue 4, December 2007, Pages 840-854. https://doi.org/10.1016/j.jmacro.2005.11.004. (https://www.sciencedirect.com/science/article/pii/S0164070407000110)
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