As suggested by a reader, we evaluate here the Forbes.com commentary of Gary Shilling regarding the broad U.S. stock market since the beginning of 2000. Gary Shilling is founder of A. Gary Shilling & Company, Inc., which uses a “top down” approach, “emphasizing the major themes, developed from our economic, financial, and political analysis, that will influence business and financial markets in the short and long runs. The themes are developed carefully, and we normally stick to them as they unfold, avoiding whipsawing our clients…by constant radical changes in our outlook.” The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:
- Gary Shilling frequently addresses asset classes other than stocks, including Treasuries, housing and oil. This review focuses on his outlooks for the broad U.S. stock market.
- He is generally consistent in his views to an extent that defeats forecasting precision. For example, he predicted the demise of housing and subprime lenders starting in 2002. See also below his early 2006 and early 2007 (and, from his web site, also 2008) forecasts that U.S. stocks would drop below 2002 lows.
- Though his column is approximately monthly, his forecasts tend toward the longer term. Unless otherwise indicated, we test his stock market forecasts primarily against results six months and one year hence. There are some fairly long periods during which he does not address U.S. stocks.
- Gary Shilling’s forecast sample is small and unevenly distributed across a fairly long period, so confidence in the measurement of his accuracy is low.
Note that we use the Forbes.com magazine publication dates for the table entries, and they post-date their issues, meaning that Mr. Shilling actually prepares columns at least two weeks before the publication/entry date. This approach treats new forecasts the same way as those pulled from magazine archives.
See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.
| S&P 500 Index | ||||||
| Date | Comments from: Gary Shilling via Forbes.com and MarketWatch.com | 21-Day Return | 63-Day Return | 126-Day Return | 254-Day Return | |
| 8/6/12 | Early this year I predicted the S&P 500 index would fall to 800 on weak corporate earnings. It hasn’t happened yet, and the figure has been scoffed at. But disbelief is exactly how people reacted when I predicted the housing bubble’s burst in this column in early 2005. | 0.7% | 1.7% | 8.5% | 21.2% | – |
| 8/9/10 | …I continue to recommend paring back stocks… | -2.6% | 8.3% | 16.2% | -0.6% | – |
| 8/3/09 | The stock market is exhausted, and I think investors are again worrying about the reality of a deepening worldwide recession. …I continue to forecast $40 per share in S&P 500 operating earnings in 2009. Put a generous stock market bottom p/e multiple of 15 on that and you get an S&P 500 of 600… | -0.5% | 6.3% | 8.6% | 12.3% | – |
| 7/1/09 | …I don’t see stocks overall sustaining the recent rally, so I’d sell equities in general… The carnage will persist as corporate profits continue to drop, rising unemployment and stock market losses devastate personal income and tax collections… | -4.4% | 6.9% | 22.0% | 11.3% | – |
| 4/27/09 | …real GDP growth will fall to a 2% annual rate over the next decade. Stocks will probably follow the same anemic path. Your real return will be maybe 1% to 2% growth added to a 3% dividend yield. | 4.1% | 14.2% | 27.5% | 40.7% | – |
| 3/14/09 | …the market might actually bottom some time this summer at around 600 on the S&P 500… | 13.0% | 25.5% | 38.3% | 54.6% | – |
| 2/16/09 | It’s way too early to get back into U.S. stocks. S&P 500 earnings will drop to $40 in 2009. Apply a generous bear market multiple of 15 to this and you end up with the S&P at 600. | 0.7% | 11.9% | 27.2% | 40.5% | – |
| 12/8/08 | …even after the financial crisis and recession end, maybe by 2010, slow economic growth and poor profits are likely to drag on. Don’t be in a rush to buy stocks. | 0.0% | -20.9% | 3.6% | 21.2% | + |
| 10/22/08 | The economy hasn’t hit bottom yet. Neither, in all likelihood, have stocks… If you’re an equity investor with a long-only portfolio, it’s not too late to take some money off the table. | -17.1% | -8.9% | -6.2% | 17.5% | + |
| 9/11/08 | Worse is Yet to Come | -28.0% | -28.9% | -39.9% | -15.7% | + |
| 1/28/08 | Our January 2007 report noted: “stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession…” We’re convinced…that our…investment themes from a year ago is still valid. | 1.9% | 3.2% | -7.1% | -37.6% | + |
| 8/2/07 | I suspect that a full-blown bear market is starting, or soon will. | 0.1% | 4.0% | -6.4% | -12.7% | + |
| 1/10/07 | [During 2007,] U.S. stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession. | 1.6% | 1.7% | 7.3% | 0.1% | – |
| 10/19/06 | Profits may well suffer a big hit that does not seem to be factored into stock prices. | 2.5% | 4.1% | 8.3% | 10.9% | – |
| 10/2/06 | The index of home builder sentiment leads the S&P 500 by 12 months, and that index started to fall a year ago. | 3.5% | 6.5% | 8.0% | 17.0% | – |
| 2/13/06 | [During 2006,]…the house price collapse will induce a painful recession that will send U.S. stocks into a tailspin. Stocks may breach their 2002 lows. | 3.2% | 2.2% | 0.3% | 15.3% | – |
| 8/15/05 | So the stock advance since October 2002 may be a bear market rally with the final lows yet ahead. …Don’t expect a big year-end rally in 2005. | -0.5% | -0.2% | 2.3% | 5.2% | + |
| 6/20/05 | …I don’t think you should expect much from the stock market in the next several years. | 1.6% | 1.8% | 4.5% | 2.4% | – |
| 4/11/05 | Most of the yield-curve flattening is over. Still, puzzlement over the compression and disbelief in its continuing have delayed the effects on security prices. Be forewarned. | -1.3% | 2.6% | 0.9% | 9.1% | – |
| 9/20/04 | The speculative fever of the 1990s persists to this day. Watch out. | -1.7% | 7.2% | 6.0% | 7.8% | – |
| 7/26/04 | These are worrisome times that require equity investor caution. | 1.1% | 2.1% | 7.7% | 14.1% | – |
| 6/21/04 | …the S&P 500 is already unsustainably high. …earnings growth will not be adequate to support current lofty stock prices. Indeed, the rise from October 2003 to March 2004 may prove to be a temporary rally in a long bear market that is far from over. | -3.2% | -0.2% | 6.5% | 7.4% | – |
| 12/22/03 | Foolishly, bulls look at current earnings increases and see more strength ahead. …Sorry, the party can’t continue. …if you expect the economy and the market to keep climbing next year, you will be sorely disappointed. | 4.4% | 0.1% | 4.7% | 10.2% | – |
| 10/27/03 | Stocks are very expensive. …We all love lower tax rates. Still, they don’t justify the current prices on stocks. | 2.2% | 11.0% | 10.4% | 9.6% | – |
| 6/23/03 | On balance, in the years ahead, count on low corporate earnings growth. If you assume that I’m right with my mild deflation forecast, Treasury yields will decline enough to justify current p/es. Then stock prices will go up about 1% annually–only as fast as profits rise over the next decade. | 0.7% | 5.6% | 11.0% | 15.6% | – |
| 4/14/03 | I foresee real returns of 5% to 6% a year on stocks. But while “real” usually means “inflation-adjusted,” in this case, it means “deflation-adjusted.” Nominal returns will be 4%, including reinvested dividends, and deflation will add 1% or 2% a year… | 6.1% | 13.4% | 17.3% | 28.2% | – |
| 3/3/03 | Look for stock price appreciation of 1% to 5%, maybe less, for many years. | 2.8% | 15.4% | 20.1% | 38.3% | – |
| 11/11/02 | …I foresee a long stretch of low stock appreciation… | 3.3% | -5.4% | 7.5% | 20.8% | – |
| 9/2/02 | Pension sponsors unloading stocks will add to the market’s woes. | -5.7% | 6.6% | -6.4% | 16.3% | – |
| 5/27/02 | Now that torrid stock price surges are no longer a given, those puny payouts should grow back to the 3% yield level they once enjoyed. Get ready for that now. | -9.4% | -12.4% | -13.1% | -10.3% | – |
| 2/18/02 | …once things settle, stocks will probably return 6%, half from dividends–in line with past eras of mild deflation but a far cry from the late 1990s. Risk-adjusted, bonds will be competitive with stocks. | 6.3% | 2.1% | -14.3% | -21.7% | – |
| 12/10/01 | …subdued stocks in future years… Exuberance is dead for a long while. | 1.5% | 2.3% | -11.1% | -20.9% | + |
| 8/6/01 | Avoid stocks except for shorts. And buy long Treasurys. | -5.7% | -7.1% | -8.7% | -23.4% | + |
| 4/30/01 | Long Treasurys have trounced stocks in the last year. Invest for more of the same. | -0.1% | -3.5% | -15.2% | -12.9% | + |
| 3/5/01 | The early-2001 sucker rally looks like late 1973, when the Dow regained two-thirds of its earlier drop then fell another 41%. Sell stocks. | -10.9% | 1.6% | -9.1% | -7.0% | + |
| 11/13/00 | … reduce equities you can’t hold through a major bear market. Buy long Treasury coupon or zero coupon bonds. | 0.6% | -2.4% | -7.5% | -15.9% | + |
| 10/16/00 | Don’t look for a soft landing… Most stocks…will remain unattractive until well into the slump, when economic recovery and the end of the profits slide are in sight. | 0.6% | -3.5% | -13.3% | -21.1% | + |
| 8/7/00 | Staying with stocks in this environment is very risky. They start falling before a recession arrives and keep falling until well into the downturn. | 0.9% | -3.4% | -8.5% | -20.0% | + |
| 4/3/00 | …credit authorities are committed to curbing the rally, along with investor wealth and consumer spending. I would bet on the Federal Reserve’s slow-moving tortoise in the race against the fleet-footed tech-stock hare. | -6.0% | -3.4% | -4.6% | -23.5% | + |
| 3/20/00 | As the Fed tightens credit and raises interest rates, the stock market, bit by bit, loses breath it cannot regain. Financial and cyclical stocks have succumbed first. Next are the high-tech issues. True, many don’t depend on debt, but the general economy affects them. Given the techs’ sizable valuations, their demise will collapse the 17-year-old bull market’s lungs. That last gasp likely will come soon. | -1.0% | 0.5% | 0.6% | -23.3% | + |
| 2/21/00 | You may have made a killing in Internet and other tech stocks, but I advise filling your ears with beeswax to resist the Street’s siren songs of valuation inflation. Otherwise your portfolio may crash on the rocks, just as Japanese stocks did in the late 1980s. | 11.0% | 4.1% | 10.3% | -7.9% | – |
