What Market Pundits Got Wrong About 2024
Each year, commentators and pundits try to forecast what financial markets will do in the future. And each year, many of those predictions are wrong.
In this post, we’ll look at three market predictions from the pundits that didn’t come true in 2024. We’ll also share some perspective about what those failed predictions mean for you as an investor.
1. The S&P 500® didn’t have a rough year.
Heading into 2024, some experts encouraged investors to temper their optimism about US stock market returns and to expect worse-than-usual performance. The year isn’t over, but with just a few weeks left in the year, it’s looking like these experts probably got it wrong. As of December 5, 2024, the S&P 500® is up over 27% year to date—more than double its average return (a little over 10% according to Investopedia) since its inception in 1957. And yet:
- Hedge fund manager Doug Kass predicted that the S&P 500® index would fall in 2024, potentially by 5-10%.
- BCA Research warned in late 2023 that the index could decline over 25% in the coming year.
What this means for you: If you had avoided investing in US stocks in 2024 because you thought you’d get lackluster returns, you would have missed out on returns that have (so far) been far above average. That’s why we don’t think you should try to time the market based on experts’ predictions.
2. The federal funds rate didn’t come down as much (or as quickly) as some experts thought it would.
This time last year, many people expected that the fed funds rate (and, as a result, other consumer interest rates and bond yields) would start to come down in 2024 as inflation continued to cool off. Directionally, this expectation was right, but the details were often wrong. Consider:
- Kiplinger predicted that cuts to the federal funds rate would happen during the first six months of the year, and that the Fed would avoid cutting rates in the fall because of the election. However, this turned out to be incorrect: The Fed held rates steady during the first half of 2024 and delivered a 50 basis point cut in the last FOMC meeting before the election.
- Morningstar predicted six interest rate cuts in 2024. While it isn’t yet clear whether we’ll end up with two or three rate cuts this year (with one FOMC meeting still to go before the end of the year), we know we definitely won’t end up with six by year’s end.
What this means for you: If you had tried to use interest rate predictions to time the bond market and generate outsized returns in 2024, you probably would have failed. As we’ve written before, it’s very tough to time the bond market because no one can accurately predict the future, and expectations about future interest rates are already priced in. Instead, we suggest investing in bonds when you decide they fit your risk tolerance and overall investment goals.
3. The US economy didn’t fall into a recession in 2024.
Recession predictions have been a dime a dozen in the years immediately following the Covid-19 pandemic. However, no recession (typically defined as two quarters in a row of shrinking gross domestic product) has materialized yet.
- Among the experts predicting a recession in 2024 was economist Harry Dent. Economist David Rosenberg put the probability of a 2024 recession at a notable 85%.
- The yield curve was inverted for much of 2024, which led many experts to predict a recession. While an inverted yield curve is often seen as a warning sign that a recession is imminent, no recession occurred in 2024 (although it’s always possible one could occur in the new year).
What this means for you: If you had stopped investing in 2024 because you feared a recession and wanted to build up an extra-large cash buffer, you likely would have suffered from significant cash drag this year. We think it’s smart to have an adequate emergency fund in case of a rainy day, but avoid going overboard based on pundits’ predictions.
Even if the US economy had entered a recession this year, we still think holding a globally diversified portfolio of low-cost index funds would have been a good strategy for building long-term wealth. Because this type of portfolio (like Wealthfront’s Classic portfolio, for example) has exposure to other asset classes beyond US stocks, it can be more insulated from the effects of a recession.
The takeaway: It’s hard to predict the future
It’s tempting to try to predict the future, but it’s not very helpful. The incorrect predictions in this post are a good reminder that it’s very difficult to determine ahead of time how financial markets will move.
That’s why at Wealthfront, we suggest investing in a globally diversified portfolio of low-cost index funds (like what we offer in our Automated Investing Accounts) and holding it for the long term. It’s a time-tested approach to building long-term wealth, no crystal ball required.