By Bertel Roslev Rasmussen

2023 is over - and December ended up delivering a terrific end to a great investment year for 2023. It certainly wasn't in the cards at the start of the year. The backdrop at the start of the year was inflation and energy crises spiced with increased geopolitical turmoil - and if you asked economists, it was just a question of when the sharp interest rate hikes from the autumn of 2022 would take effect in the form of a recession.

At the start of 2023, if you asked the forecasters in the form of the largest international financial institutions about their expectations for the stock market as measured by the S&P 500, the average estimate of the value of the index at the end of the year was around 4,000 (with a minimum estimate of 3,400 and a maximum estimate of 4,500). The S&P 500 ended at 4,770, which resulted in the financial institutions on average being 21 percentage points off on the realised return (5% estimated return vs. 26% realised return). Furthermore, the best returns, according to the financial institutions, were to be found among small cap stocks and stocks in the EM region. None of this came to fruition as the equity market in 2023 was primarily driven by a very few, but very large US tech companies now popularly referred to as "The Magnificent Seven".

The above is not to ridicule the financial institutions' analyses - they are both thorough and made by skilled people - but it highlights the difficulty of making qualified guesses about the development of the stock market or segments of it. Predicting the development of the stock market may seem tempting for both private investors and professional investors - who often have an interest in these "stories" in their business model - but unfortunately, the results are very rarely commensurate with the effort. The transformation mechanism from analyses of the macroeconomic situation - which many investors' analyses are based on - to the development of the stock market is complex and influenced by a number of external factors. Academic studies show no correlation between economic development (measured by GDP, for example) and stock market performance.