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Year after year, banks deliver precise forecasts for growth, interest-rate paths and equity markets. Yet the annual outlook is less a compass than a ritual – a piece of industry folklore somewhere between herd behaviour and marketing. What investors actually need are clear processes and transparent assumptions.

A commentary by Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM.

At the turn of the year, it is as much part of the furniture as fondue and Feuerzangenbowle: the annual forecast of the investment houses. From Wall Street to Frankfurt, market players outdo one another with tables, charts and “strategic” theses, while knowing full well that their hit rate is scarcely better than a January weather forecast. So why does this tradition persist, even though – unlike fondue – everyone doubts its usefulness?

The answer lies less in the pursuit of insight than in market dynamics. For research departments, the rule is: when it comes to general forecasts, the investment expert has to be present. Otherwise, the audience might think the future does not interest them. Or worse: that no one cares about their opinion. Anyone who publishes no forecast at the turn of the year signals a loss of relevance. So forecasts are issued at all costs.

What is striking about these outlooks is how similar they usually sound – and the coming year is no exception. Despite the widely lamented “uncertainty”, there is remarkable consensus: around 2.5 per cent global growth, “solid” prospects for US and emerging markets, and a moderate easing of monetary policy. Europe is expected to benefit from government spending on defence and infrastructure, while AI and productivity fantasies drift through the reports as a recurring storyline. Risks? Naturally geopolitical and fiscal, but largely priced in. Only when it comes to AI has the air become thin.

That many outlooks closely resemble one another is no coincidence. They are all based on similar models, assumptions and datasets. Added to this is a tendency towards extrapolation – extending last year’s trend and calling it the future. Structural breaks, political shocks or technological leaps are often left out. And because no one wants to deviate too far from the consensus, forecasters keep an eye on one another. A textbook case of herd behaviour.

Another problem is that, in order to capture the audience’s fleeting attention, forecasts are often presented as point targets. That makes for punchy messaging. Headlines such as “S&P 500 up eight per cent” sound like certainty, but conceal the fact that such figures represent, at best, one scenario among many. It is the illusion of precision. Exactness feigns certainty. Yet the future is not a point, but a space full of possibilities.

Long-term investors therefore need less prophecy and more process. A clearly defined, rules-based approach can cope with uncertainty better than a single annual figure that is already outdated by March. The only certainty is uncertainty – and thus the inevitability of forecast errors. What matters instead are scenario planning, risk management and convex strategies – set-ups that can respond to different developments. Truly useful research is characterised by transparency about assumptions and probabilities. Investors should not look for a single target, but understand the range of potential outcomes: how large, how likely, how interconnected. Plan A is rarely enough – Plans B and C are required as well.

Annual forecasts will nevertheless remain popular – because they tell stories, create the illusion of orientation and structure the start of the year. In the end, they are what crystal-ball gazing has always been: interesting, perhaps instructive, as long as it is not taken too seriously. And even with Feuerzangenbowle, it is best not to peer too deeply into the glass.