Data Driven Investor: Investing: 17 Forecasts for 2023
Whether it’s earnings season or not, Wall Street spends considerable time forecasting prices for stocks, typically as far out as 12 months. Investors then pay attention to those forecasts, particularly for any change.
A Wall Street upgrade or downgrade on a stock can cause an immediate price change. However, these forecasts are based on a considerable amount of data. Consequently, the valuation has considerably leeway to it.
For instance, a view on a specific stock will also depend on a view of the overall economy. That overlooks stocks capable of growing even in a weak economy. Or in being able to buck the next slowdown for specific reasons.
Other outside factors may include consumer sentiment. Or trends such as geopolitical sentiment. Ultimately, combining all these factors results in a forecast price. That price should be based on a concept that’s both explainable and reasonable.
However, this style of analysis tends to take current trends and extrapolate them out. Investors may have entered the start of 2023 bullish on energy given its strong run in 2022.
But energy prices were already on the decline. And it’s been a poor performer this year as other sectors such as technology have fared better.
Investors need to understand that price forecasts can often reflect reality, or reflect current conditions that are about to change.