A long-run comparison of five groups' forecasts shows professional investors, retail investors and CFOs all extrapolate recent returns into the next year — while professional economists barely move.
There is a rule in the stock market that has been confirmed countless times: the more prices have risen, the lower the return you should expect going forward. Every valuation method rests on it.
One chart, three different lines
The study plots past US stock market returns against what different groups expect for the following year.
The three long surveys of professional investors — the one running from 1956 to 2024, the IBES database the banks use, and Robert Shiller's — all point the same way: after a fall, they expect more.
Among retail investors and corporate CFOs, the line reverses. After a strong run they expect even stronger returns ahead, classic trend-following.
Somebody read the disclaimer
The odd ones out are the professional economists surveyed by the Philadelphia Fed. Whatever the market did last year, their forecasts hardly budge.
That legal line at the bottom of every investment deck — past performance is no guide to the future — seems to have been taken to heart only by them.
The awkward part: CFOs are exactly the people who have to tell the market what next year looks like.
Why it matters
Extrapolation is not just something amateurs do at the kitchen table; it sits inside the heads of the people guiding earnings expectations. A lot of what markets agree on about the future is simply the recent past copied forward.
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