At the beginning of the year, the overwhelming consensus of financial experts was there would be a recession in 2023. Surely, in such a scenario, the stock market would be down for the year. No such recession occurred, and, as 2023 nears its end, markets are near all-time highs.
The fact that the experts were wrong is not an unusual occurrence for economic prognosticators. A recent Wall Street Journal article pointed out that the consensus at the end of 2021 was that big tech would be immune to interest rate increases. Wrong! The year before, the consensus was that paying high prices for companies with no profits was a good idea. Wrong! In fact, it seems that the more certain the consensus, the more likely it will be wrong.
Economics is sometimes referred to as the dismal science. For real sciences, predictions can be made with a good degree of accuracy. Clearly, that is not the case for economics and financial predictions. Many things can change over the course of a year that have huge effects on the economy. Also, economic predictions tend to be influenced heavily by old data and human emotions. Data from the past influences the predictions for the future.
As we head into 2024, the consensus is that the US economy will have a “soft landing” and no recession. Presently, inflation has come down from its 2022 highs, and the economy continues to grow despite high interest rates. After the latest Federal Reserve meeting, interest rates are forecast to be lowered three or more times in 2024, despite the economy continuing to grow. It is not very common that interest rates are lowered outside of a recession.
Will the consensus be right for a change in 2024? Anything is possible, but there is a good chance the experts will be wrong again. Plus, even if the experts are correct, markets tend to front-run the consensus. Thus, the potential gains of betting on something that everyone agrees upon are likely to be limited.
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