Let Me Fix Your 2025 Stock Market Forecasts

Joachim Klement is an investment strategist based in London whose steady stream of investment-related blog posts and publications has drawn considerable attention. Kicking off 2025, Klement once again underscores how meaningless so‑called “expert” stock market forecasts are, adding last year’s data point to make his case.

Every December and January, the media is flooded with index forecasts. Last year, I wrote about just how terrible these forecasts are.

Let’s add 2024’s data point. At the start of last year, analysts expected the S&P 500 to rise by 7.9%, while strategists were somewhat more pessimistic, forecasting a 1.9% gain. And the actual outcome? When we opened the lid, the index was up 23%.

Remarkable. Now let’s go back and run through this exercise again. At this point, being wrong every year feels almost like the default. Over the past 20 years, the correlation between analyst forecasts and actual returns has been 0.2, and for strategists it has been 0.0.

So what about the 2025 outlook? This time, strategists have, unusually, decided to venture into optimistic territory.

Over the past 20 years, strategists’ average forecast for S&P 500 returns has been 4.2%. But after two consecutive years of returns above 20% and elevated valuations, they have turned more bullish for 2025, projecting a 9.1% gain. Analysts have followed suit, forecasting a 9.2% rise—virtually identical to the strategists’ numbers.

But all hope is not lost. We can fix these forecasts.

Every forecast comes with an error. Over the past 20 years in the US, the average error in bottom‑up forecasts has been 17%, and the average error in top‑down forecasts has been 19%. If we assume that index returns follow a normal distribution (please spare me the emails pointing out that they don’t), then there is a 95% probability that actual stock market returns will fall within plus or minus two standard errors of the forecast. The chart below compares these error‑adjusted forecasts with the actual outcomes.

There you go, I’ve fixed the chart for you. Except for 2008, in every year the actual result falls within the range of outcomes that strategists deemed possible. Applying the same method to the 2025 forecasts, there is a 95% probability that the S&P 500 will end up somewhere between a 29% decline and a 47% gain.

No need to thank me.