In defence of the annual outlook

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is senior adviser at Engine AI and Investa, and former chief global equity strategist at Citigroup

’Tis the season to be jolly. Maybe not if you are a jobbing strategist or economist. Instead, you have probably been locked in the office churning out your 2025 outlook report. You do not want to write it, your clients do not want to read it. Snarky financial journalists are circling.

But we still do it. Bloomberg estimated that Wall Street published 650 outlooks for 2024. That would be my base forecast for 2025. The buyside — investors and asset managers — seems to have caught the bug as well. Maybe that is why they do not have time to read the sellside outlooks — they are too busy writing their own.

Having published 34 of these generally unloved documents over my career, my work is done. I could be tempted to join the annual beat-down. But, instead, I’m going to make a contrarian call (which always gets attention at this time of year!). So, here’s my defence of the annual outlook report.

It is always healthy to take a step back from the market noise. Making a periodic review of your investment framework and the outlook for economies and markets is a good discipline. It is odd that everyone decides to do this at the same time of year, but so be it.

It is also a good discipline to collect the thoughts of others in one place. In the process of producing my annual outlook, I would gather inputs from economists, bond strategists, quants, commodity experts, stock analysts and regional equity strategists. 

This usually highlighted inconsistencies. Not all of them could be right (or wrong). I was forced to make choices when integrating their views into my equity forecasts and recommendations. That is investing for you.

But I found that the best discipline of all is committing these diverse inputs to the written word. The transfer of thoughts from my head down to my fingers into my keyboard and up on a screen demanded structure, clarity and consistency. At least for me it did. Even if my annual outlook never got published, I would still have written it. Maybe you should all give it a go.

It is easy to review the annual outlooks from the previous year and ridicule how wrong they were. For example, most strategists were too cautious on the US equity market a year ago. The S&P 500 index has subsequently risen about a quarter this year. “Nobody knows anything” is a quote attributed to the Hollywood screenwriter William Goldman. It is a favourite among the critics of forecasters and active fund managers. Why bother? Just buy an index fund and go to the beach.

But annual outlooks, even when wrong, help to kick off the price discovery process. At the very least, they help investors understand what is priced into markets. Sure, we probably do not need 650, but too much research is better than too little, a lesson we have learnt in the UK equity market over recent years.

As a sellside strategist, I always started with the assumption that none of my research was read by any of my buyside clients. If they did then it was a bonus, but nothing more. Instead, the research formed the substance of regular meetings. It is these meetings that they really valued. In that context, the annual outlook was a door-opener in the highly competitive business of attracting the attention of busy investors.

What tips do I have for the next generation of annual outlook writers as they stare at that intimidating blank screen? First, it is not the place for truly original research. Investors just want a clear summary of your view for the next 12 months, partly because that makes it easily comparable with their own views and those of your competitors. Save the cool stuff for your February research reports.

Second, if you want your clients to really love you (who does not?) then tell them what they want to hear. Over the years, my two most popular predictions were “here comes the great rotation from bonds back to equities” and “it is going to be a stockpickers’ market”. Unfortunately, neither really happened, but both were guaranteed to bring nods of approval during start-year marketing roadshows.

Maybe I could save time and effort by loading my inputs into ChatGPT and asking it to churn out my annual outlook. But this would bypass the disciplined thought necessary to write the reports myself. Most importantly, it would not stress-test me before going out on the road to present that outlook. I would soon be found out.

Finally, I loaded a bunch of 2025 outlooks into an AI agent, then asked for the most common prediction. The answer: “It’s going to be a stockpicker’s market.” Well, I never.