How Did Consensus Do in 2013?
"In ambiguous situations, it's a good bet that the crowd will generally stick together -- and be wrong."
-- Doug Sherman and William Hendricks
As we entered 2013, consensus estimates for economic and profit growth as well as stock market prices were modest. Projections for bond yields were for only a slight rise. As well, most sell-side projections for earnings, the economy, bond yields and stock prices were grouped in an extraordinarily tight range.
- Both U.S. and global economic growth disappointed the consensus (despite a strong third-quarter 2013 U.S. GDP print).
- S&P earnings were a slight beat but only because of more aggressive than anticipated share repurchase programs, lower depreciation and interest expenses and a decline in effective tax rates.
- Bond yields rose more swiftly than expected.
- Stock prices ended the year materially above beginning-of-the-year forecasts.
Last year, I chose to use Goldman Sachs' forecasts as a proxy for the consensus.
Below were Goldman Sachs' year-ago forecasts for 2013 (with the actuals in parentheses):
- 2013 U.S. real GDP +2.0% estimate (+1.8% actual), global GDP up 3.4% estimate (+2.8% actual);
- 2013 S&P 500 operating profits of $108 a share estimate ($108 a share actual);
- year-end 2012 S&P 500 price target at 1575 estimate (1848 actual);
- 2013 headline inflation of +2.2% estimate (+1.5% actual); and
- 2013 closing yield on the U.S. 10-year Treasury note at 2.20% estimate (3.00% actual).
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