December is typically when we hear Wall Street strategists announce their forecasts for the S&P 500^® for the year ahead, and this year has been no exception: 2026 forecasts have ranged from a relatively bearish 7,100 from Bank of America to a bullish 8,000 from Deutsche Bank. But how accurate have these forecasts been in the recent past?¹

While 2025 is not quite in the books yet, we can look to forecasts from the end of 2023 and 2022 to understand how well strategists did at predicting S&P 500 performance in subsequent years. Exhibit 1 shows that what these forecasts had in common was they consistently underestimated the scale of market gains in both years, with The 500^® up double digits in 2023 and 2024, a sharp contrast from the losses witnessed in 2022.

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Complementing these top-down forecasts, a bottom-up forecasting approach involves industry analysts calculating price targets for individual S&P 500 constituents, the medians of which are then aggregated to arrive at a target price estimate for the index in the next 12 months. This target price can then be divided by the actual price to convert the estimate into an “implied” target return.

Exhibit 2 compares the actual S&P 500 12-month return to the implied target return on a quarterly frequency over a 20-year period. There were noticeable divergences between actual versus forecast returns, particularly during the financial crisis, when the S&P 500 decline of 39% in 2008 was significantly different from the gain of 17% predicted 12 months earlier. Another example occurred during 2022, when the actual index loss of 19% differed from the gain of 11% predicted a year earlier.

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Predicting the S&P 500 target in a year may seem like a daunting effort, but what about forecasting market gains over a longer horizon? Exhibit 3 looks at the annualized average 10-year return forecast for the S&P 500 from the Philadelphia Federal Reserve’s Survey of Professional Forecasters² and compares this statistic to the actual 10-year performance of the S&P 500. Spanning an almost 25-year period, predictions were generally bleak historically, most prominently in 2008 and 2009, with actual 10-year losses of 3% in each year for The 500 compared to forecasts of 8% and 9%, respectively, 10 years earlier.

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Regardless of whether forecasts are top-down or bottom-up in nature, over one year or longer, history tells us that predicting future market performance may be a futile exercise.³ As we approach 2026, numerous unknowns remain, including the future rate trajectory of the Fed, the fate of Big Tech’s investment in AI, along with lingering inflation and tariff-related concerns globally. For those who decide to make asset allocation decisions based on these forecasts, caution may be warranted.

¹ One of the earliest records analyzing the poor track record of forecasters is by Alfred Cowles in his paper, titled, “Can Stock Market Forecasters Forecast?” Econometrica, July 1933.

² See “Survey of Professional Forecasters,” Federal Reserve Bank of Philadelphia.

³ Unless of course you have access to a genie, see indexologyblog.com/2025/11/13/animal-spirits-or-anxiety

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