The Uselessness Of SPX Price Targets

The WSJ had an article about SPX price targets from brokerage firm strategists coming under scrutiny, or maybe fire is a better word. You probably heard that BofA bumped its equity strategist about ten minutes (slight exaggeration) after he reaffirmed his year end target of 1400. Some of the usual suspects are also mentioned for either sticking to their guns or giving up the ghost.

Many investors like to hear SPX price targets, so many financial firms oblige. I used to do a little more here myself with picking some number that was away from consensus that tried to incorporate some aspect of where I thought we were in the cycle. I was close to right a couple of times and too pessimistic a couple of times.

The simple issue here is that these forecasts tend to be wrong, a lot. We’ve gone over some of the dynamics of the perma bulls, the threat they pose and some of the conflicts they may have in “needing” to be bullish so it is somewhat surprising that BofA got rid of someone who appeared to be too bullish.

Price targets notwithstanding, if you zoom out a little, the US is a destination where the sovereign debt was downgraded, there is a demographics problem, the government is not functional, growth is below trend with no visibility for improving, there is too much debt and there might be a serious problem (I think there is a serious problem) with liabilities to retirees and future retirees.

If this description were about another country you would quickly move to research another investment destination.

Anyone capable of being able to think in terms of several years at a time (or even a little longer) would be better served looking to longer term trends that have a reasonable basis for working in the future or continuing to work as they have in the past. Obviously not all previous winners can continue to work out well.

Consider the above issues with the US (and any others you care to add) and ask yourself what is the simplest outcome. My answer to that question is not a Schiffian (as in Peter Schiff) implosion but instead an ongoing muddle where average growth rates are well below what we think of as being normal and being far inferior to many other countries in the world.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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