If the definition of insanity is to do the same thing over and over and over again, expecting a different result each time, then many Wall Street analysts need to be committed. As the season of year-ahead outlooks is now upon us. But despite the sweat and mental anguish, many analysts have surely expended on their forecasts. Most of them look like they could have been lifted from the 2016 vintage or from the 2015 vintage or from 2014, for that matter.
Not all the forecasts have been published yet, but enough have been to see that the consensus view is remarkably familiar. The median analyst forecast is for the Fed's favourite inflation measure to quicken from 1.5% to 2% by 2019, the 10-year Treasury yield to climb to almost 3% by the end of 2018, and for the S&P 500 to gain another 7% to hit 2,825 points.
Take JPMorgan as a fairly typical example. Its analysts reckon that faster inflation and tighter monetary policy in the US, Europe, and Japan will have material consequences for fixed income - in other words, a 2% annual loss for developed market bonds, the worst performance since 1994.
The problem is that this is, in broad strokes, what analysts have been wrongly predicting for years now. Year after year, inflation has stayed stubbornly well behaved. The Fed has tiptoed forward. And bonds have defied the naysayers.
Of course, journalists should be wary of throwing stones in glass houses. And analysts can often get their numeric forecasts wrong whilst nailing the broader sweep of their predictions. Much maligned annual outlooks are still a useful mental exercise and a handy excuse to take a step back and revisit some of our assumptions. And indeed, next year could be different. The global economy is in good shape. And inflation should eventually start stirring. The Fed might actually decide to quicken its pace. The long-promised bond bear market may be around the corner.
Perhaps if volatility really is a coiled spring, it'll tear through financial markets in 2018. But the record of Wall Street's finest minds is pretty underwhelming.
