What Demand Planners Can Learn from the Stock Market

If you think forecasting product demand is hard, try forecasting the future values of the Standard and Poor’s 500 Stock Index (S&P500)! Dissimilar as they might be, there are lessons to be learned for demand forecasting from stock market forecasts. Despite much popular evidence to the contrary, Wall Street collectively has an aversion to putting a number on the future value of the stock market. This is primarily due to three reasons: 1. It is very difficult to forecast accurately. 2. A cynic would point out that a negative forecast is not good for business. 3. The market in the past has trended upward; so is the naïve forecast. “It will go higher,” calling for more of the same, which has been on average fairly correct. The statistics support the viability of a naïve 22 Copyright © 2012 Journal of Business Forecasting | All Rights Reserved | Fall 2012 forecast over the past 86 years, from 1925 to 2011. During these years, Large Cap Stocks, as represented by the S&P500, have been up over the previous year 62 times, a little better than 70%. The naïve forecast, therefore, isn’t so bad even if it is woefully incomplete. WHY FORECAST THE FUTURE MARKET? We all forecast ...