Broken clocks have the virtue of being right twice a day. What about broken stock market strategists? They’re usually worse than broken clocks, because most of them change their predictions after they fail to materialize. Thus I read today this snippet in the Wall Street Journal:
“We believe that the Trump rally will continue as long as the economy continues to reflate, and the market views higher inflation expectations and rates positively,” Jonathan Golub, the chief U.S. market strategist at RBC Capital Markets, wrote on Tuesday. The rally since election day looks like a “classic pro-cyclical, early-stage, reflationary market,” he said, with money flowing into financials, “deep” cyclicals, and small caps. Stocks that are more domestically focused are also benefiting, a bet on the expected new policies from the new administration. This is all something Golub expects will continue in 2017.
Indeed. Here was Mr. Golub in the Journal just over a month ago on November 8th:
In this unusual election cycle, short-term moves could be flipped — and exacerbated. Jonathan Golub, an equities strategist at RBC Capital Markets, predicts the S&P will rally between 3% and 4% if Mrs Clinton wins, and fall between 10% and 12% if Mr. Trump takes the White House.
So much for that. The way to get some market predictions right is to be a perma-bear or a perma-bull: if you always call for an impending rally, or always call for an impending crash, then at least sometimes you’ll predict the future correctly–just like the broken clock. The better approach, of course, is to avoid making market calls at all, because there’s no way to make them reliably. The banks and brokerages that employ market strategists are fundamentally sellers of financial products, and the best way to sell these products is to induce you to change what you’re doing now, usually by convincing you to extrapolate the current trend and chase the recently outperforming asset class. Market strategists can provide useful data and provocative insights that can partially inform an asset allocation approach, but the business of calling the market is a fools errand.