The Base Case Lie: Why Wall Street’s S&P Forecasts Are Costing You Money

The Forecast Circus Never Stops

Every time something rattles the market, whether it’s a war, an inflation print, or a Fed whisper, the same parade of Wizards of Smart Portfolio Managers floods the business networks to announce they are revising their year-end S&P 500 target. They dress it up in serious language. They cite geopolitical uncertainty. They talk about visibility being cloudy.

I find it hilarious. When exactly is the outlook NOT cloudy? When has the future ever been perfectly clear?

Yogi Berra, nine-time World Series champion and one of the great practical philosophers of our time, nailed it: predictions are very difficult things, especially about the future. That’s the honest truth Wall Street refuses to admit.

Why I Don’t Publish S&P Price Targets

I get asked all the time why I don’t put out a year-end S&P forecast. The answer is simple. I don’t care what the index does by December 31st, and neither should you.

Here’s the trap these forecasts create:

• The base case shifts constantly. Every macro development forces a revision, and each revision comes with a built-in excuse for why the last one was wrong.
• Chasing the forecast means constant portfolio churn. If you’re repositioning your holdings every time Goldman or JPMorgan updates their target, you are generating fees and taxes, not returns.
• The forecast is always backward-looking dressed up as forward-looking. These models are anchored to whatever just happened, not what’s actually coming.

If your portfolio strategy hinges on guessing what these guys will predict next, and then guessing whether they’ll be right, you will lose. It’s that simple.

A History Lesson Wall Street Hopes You Forget

Let me take you through some key rate-rise moments in history, because the reaction is always the same, panic first, recovery second.

• 1994: Greenspan starts raising rates. The logic baffled me even as a young guy starting my career. The economy is doing well, so you need to slow it down? Ten-year Treasury yields pushed above eight percent. The S&P sold off roughly eight percent for the year, then recovered.
• 1999: Rates started climbing right in the middle of the dot-com frenzy. Nobody cared. Party on. Yields meant nothing to a market drunk on tech speculation.
• 2006: The Fed raised rates again, this time with oil prices climbing and gas crossing three dollars a gallon. Raising rates because of an oil supply issue makes zero monetary sense. Markets sold off modestly.
• 2016: Rates ticked up, but optimism around deregulation and promised tax cuts under Trump kept sentiment positive. The market performed well coming out of that period.
• 2022: The most dramatic episode in recent memory. The Fed was still calling inflation transitory while it was already burning a hole in every American’s wallet. When they finally moved, they moved hard and fast. Markets took a serious hit.

The Lesson Every One of These Episodes Teaches

Every single one of those moments came with a fresh set of base case revisions from Wall Street analysts. Every single one came with breathless coverage about how this time was different. And in every single case, investors who owned quality companies and stayed the course came out ahead.

Zombie companies, the ones with no earnings, no real business model, and no margin for error, got wiped out. That is the actual lesson. Not what the S&P closes at on December 31st. Not whose forecast was closest.

The question you should be asking yourself is not what the market will do this year. The question is whether you own businesses worth owning regardless of what rates or indexes do in any given quarter.

That is the difference between investing and gambling on someone else’s guess.