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The chart above is a visualization of the accuracy of analysts’ price targets that we often read about in the financial press. The gold dotted line is the 12-month forward price target moved back 12 months so that we can see how well the projections matched up with reality— which in this case is the S&P 500 index price level represented by the blue line. What we observe is that the consensus forward view is generally accurate, during a bull market. Most of these forward looking estimates are derived from a no-recession, status quo basis.

We can see that the price targets get thrown off when recessions occur as in 2002 and 2008. These events take the basic status quo assumptions and defenestrate them. 2015-2016 was a different situation in that there was no actual economic recession, but corporate earnings did decline, causing what some labeled an “earnings recession”. We are in a period right now where what was predicted 12 months ago has not come true. How this current discrepancy will resolve itself remains to be seen.