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What is a forecast?

A forecast is a prediction of an investment’s future performance.

  • Forecasts are predictions of upcoming economic activity.
  • Forecasts involve researching multiple variables to support what or why something may happen.
  • The longer the period a forecast attempts to predict is, the more uncertain it will be.

Forecasts can influence the decisions investors make. For example, if a stock is forecasted to perform well in the future, investors may be more likely to buy and hold the stock’s shares. However, the further into the future a forecast attempts to predict, the less reliable it may become.

Forecasts involve considerable amounts of research. Analysts, researchers, and even independent investors consider multiple variables when drafting their forecasts. In the case of investments, they may review upcoming product releases, a company’s supply chain, and even macroeconomic changes to create a convincing forecast. For instance, if a political administration passes subsidies for companies that support the transition to a low-carbon economy, analysts may then forecast that companies in environmentally friendly industries will experience growth under that administration.

Forecasts are not limited to individual investments. They can also be drafted to predict how the larger economy will change.