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Key Takeaways
- Wall Street analysts have missed S&P 500 index targets by significant margins almost every year over the past decade.
- Even the Fed and top economists routinely miss their own forecasts, yet investors often place too much trust in those who sound sure of themselves, a long-known cognitive bias.
- Overconfidence, confirmation bias, and herd behavior make both analysts and everyday investors believe they can predict what’s fundamentally unpredictable.
As we head into the final month of the year, Wall Street’s top strategists are unveiling their 2026 forecasts, complete with confident predictions about where the S&P 500 index, a representative of the U.S. stock market as a whole, is expected to head.
Before you adjust your portfolio based on what they’re saying, consider this: they’ve underestimated market returns in six of the past eight years—often by double digits.
Yet every December, the same ritual plays out: new forecasts are delivered with the same certainty, and investors keep listening. Why do those with such expertise and mountains of data keep getting it wrong—and what should this tell you about how to invest?
Why Professional Forecasters Miss More Than They Hit
Heading into 2024, the median estimate called for a 9% gain in the market. The S&P 500 actually returned 25%. The year before? Analysts predicted a 6.8% rise; the index climbed 24.2%. In 2021, Wall Street expected just 1.2% growth—and got 26.9%. With a month left in 2025, the market has already beaten expert forecasts for this year by more than 5%.
It’s not just stock market predictions. Economic forecasters—including the ones whose models shape Wall Street’s outlooks—have a similar track record.
A Federal Reserve review of professional economic forecasts going back to 1993 found that real gross domestic product growth fell within their predicted ranges less than half the time—worse than a coin flip. Inflation forecasts did a bit better at 56%, but that still meant they were wrong more than half of the time.
The Fed’s own track record isn’t much better. Between 2012 and 2020, FOMC participants kept predicting higher inflation than actually happened. Then, when inflation spiked in 2021, they underpredicted it as prices hit 40-year highs.
If the institutions that set monetary policy can’t reliably forecast the economy, it’s no surprise that analysts building stock predictions on top of those assumptions keep missing, too.
The Confidence Trap: When Certainty Sells Better Than Truth
It’s not that analysts are bad at their jobs—they’re trying to predict something that’s often fundamentally unpredictable. No model could have anticipated the 2025 tariffs-on-then-off-again turmoil or the 2020 pandemic and ensuing market crash. Markets respond to policy decisions, geopolitical shocks, and shifts in sentiment that can’t be predicted.
The bigger question is why so many investors treat these forecasts like maps to a well-known terrain. Researchers have found that overconfidence leads investors to overtrade and overestimate their own judgment—and to place too much faith in experts who sound certain.
Confirmation bias compounds the problem. Investors often seek out forecasts that match what they already believe, ignoring analysts who contradict their outlook. And herding behavior, which occurs when everyone follows the same consensus, makes it feel risky to do anything different.
Tip
Economist Scott Armstrong dubbed the propensity to have faith in those who sound confident the “seersucker theory”: we instinctively assume that people who sound certain must know what they’re talking about. Confident predictions feel reassuring, even when the track record says otherwise.
What Works When Predictions Fail
Confident forecasts can encourage reckless trading behavior, including chasing hot sectors, abandoning diversification, and attempting to time the market. Certainty feels reassuring, but it’s the enemy of maintaining a long-term strategy.
So what should you do as you plan for 2026 and beyond?
- Make sure you’re diversified: Avoiding being too heavily invested in trendy sectors is essential, as few analysts have demonstrated a long-term record of picking the sectors that will outperform. New research from Morgan Stanley has updated the classic advice that spreading investments across different asset classes improves returns, especially now that stocks and bonds don’t always move in opposite directions. Index funds give you instant diversification without betting on any single forecast.
- Dollar-cost averaging: This means investing the same amount at regular intervals, thereby removing the guesswork entirely. More importantly, it eliminates the temptation to time the market based on Wall Street’s predictions for the coming weeks, months, or even a year at a time.
