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).
How Did My Surprise List for 2013 Do?
My 15 surprises for 2013 had the poorest success rate since 2005's list (20%).
By comparison, my 2012 surprise list achieved about a 50% hit ratio, similar to my experience in 2011. Forty percent of my 2010 surprises were achieved, while I had a 50% success rate in 2009, 60% in 2008, 50% in 2007, one-third in 2006, 20% in 2005, 45% in 2004 and one-third came to pass in the first year of my surprises in 2003.
Below is a report card of my 15 surprises for 2013 (I hit on only about 20% of the surprises):
Surprise No. 1: The U.S. economy disappoints relative to consensus expectations. Right. (Though third-quarter GDP beat consensus by a hefty amount, the full year was close to my view and lower than consensus.)
Surprise No. 2: The 2013-2014 earnings cliff sinks the markets in 2013's first half. Wrong.
Surprise No. 3: A dysfunctional Washington D.C., has profound political implications and an influential third party (the People's Party) is formed. Wrong.
Surprise No. 4: A tax on securities transactions is instituted in exchange for an increase in Medicare eligibility -- its implementation has broadly negative ramifications for financial stocks and hedge funds. Wrong.
Surprise No. 5: Under political, economic and stock market pressure, Obama begins to move back toward the center, but it is too late. Wrong.
Surprise No. 6: Despite a growing concern that interest rates will rise, the yield on the 10-year U.S. note remains range-bound. Wrong.
Surprise No. 8: Apple's (AAPL) share price and earnings continue to disappoint in the first half of 2013, but the shares rebound sharply in the second half. Right.
Surprise No. 9: The big market winner will be Altisource Asset Management. Right. (Indeed, I hit it out of the park on this one, as Altisource Asset Management, my "stock of the decade" climbed by 1,120%, to $940 a share.)
Surprise No. 10: Takeover activity slows to a standstill. Wrong. (Though M&A activity was muted relative to optimistic expectations.)
Surprise No. 11: A comprehensive New York Times expose reveals that all Chinese economic data have been fabricated. Wrong.
Surprise No. 12: There is no reallocation out of bonds and into stocks in 2013. Wrong.
Surprise No. 13: Signs of life are found on Mars. Right.
Surprise No. 15: There are numerous surprises in entertainment and in sports. (Cassadee Pope, New York Yankees, Oklahoma Thunder, Seattle Seahawks, Alabama, Tiger Words, Kentucky Derby, World Series of Poker. Wrong. (Though I did forecast the exact Alabama-Notre Dame point differential in the Bowl Championship Series Game.)