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The Average Outcome (Almost) Never Happens

Aneet Chachra, CFA

Aneet Chachra, CFA

Portfolio Manager

9 Dec 2021

Portfolio Manager Aneet Chachra looks at strategist predictions for 2022 and shows how one-year returns rarely match the average.

’Tis the season for decorations, gifts, parties and stock market forecasts. And just like holiday displays, it feels like prediction season starts earlier every year. This year, I received the first 2022 outlook report on November 7, with 15% of 2021 still remaining. A steady pace of thick publications has continued since. By now, most strategists have announced what they expect to happen next year. Here are all the 2022 forecasts I could find.

Exhibit 1: S&P 500 Strategist Estimates for the End of 2022

Aneet chart 1-new

Source: Bloomberg, Research Reports, as of 5 December 2021. Industry estimates are hypothetical in nature, do not reflect actual investments, and are not guarantees of future results.

The average forecast calls for the S&P 500® Index to close next year at 4,909 – a 8.2% price increase from its current level. This matches the average annual historical rise of 8% for the index. However, although the S&P 500’s price return has averaged 8%, it has rarely gone up by about the average amount in any given year. Remarkably, in only six out of the last ninety-four years has the annual S&P 500 gain actually been between 5% and 10%.1

Exhibit 2 shows the past distribution of annual price returns for the S&P 500. The most frequent annual return range was 10% to 20% (occurring in nearly one-quarter of years) followed by the 20% to 30% range. Importantly, both the -10% to 0% and the 0% to 10% ranges were less common than others despite being closer to the average return.

You can visually see that outcomes are not normally distributed – instead both larger positive and larger negative returns happened more often than central ones.

Exhibit 2: Frequency of S&P 500 Annual Price Returns

Aneet chart 3

Source: Bloomberg, Research Reports, as of 5 December 2021. Industry estimates are hypothetical in nature, do not reflect actual investments, and are not guarantees of future results.

Strategist estimates for next year are also rather clustered. The standard deviation of the 2022 market forecasts shown in Exhibit 1 is 240 S&P 500 points, or 5%. But the realized standard deviation of annual S&P 500 price returns is 19%, more than triple the dispersion that strategist estimates imply.2

This is because equity market outcomes are somewhat bimodal in nature. Using a single average number to describe historical or forecast returns is insufficient. The S&P 500 has increased in about two-thirds of years with an average gain of 18%. However, the S&P 500 has also declined in about one-third of years with an average drop of -14%.3

Stated simply, in up years, equities tend to be very good. In down years, they can be quite bad. A well-structured portfolio typically has an equity allocation that is often the primary return driver in up years, but also allocates to uncorrelated strategies and assets to help diversify or hedge the portfolio particularly in down years.

The pile of 2022 market outlook reports I have received are well-written, full of interesting charts, and very convincing. Strategist-provided average forecasts of 5%-10% annual total return for equities seem reasonably supported by estimated equity risk premia, dividends, growth, inflation and historical evidence.

But return outcomes over a one-year horizon tend to be much more volatile in both directions than the average. As the quote variously attributed to Niels Bohr, Yogi Berra, Mark Twain, Samuel Goldwyn and many others reminds us:

“Prediction is hard. Especially about the future.”

1Bloomberg, S&P 500 Index price series from January 1928 to November 2021.



These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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