In this post, we talk about 2021 US stock market predictions made by the large investment banks and Tesla’s Q4 2021 vehicle delivery numbers.

Stock market predictions are mostly incorrect

It is a time honored tradition to make a stock market prediction as we transition to a new year. All the major investment firms do it. As we were planning on making one ourselves, we realize that it’s really hard. The stock market is not the economy. Rather, it is a reflection of the expectation on how the economy will perform (which itself is a function of GDP growth, consumption patterns, unemployment rates, interest rates, etc). And because it is a function of human expectations, it is fallible to rational (and irrational) exuberances. These factors make it almost impossible to (predict? missing a word here, i feel) the stock market at any reasonable future time scale. 


Yet, the big banks do it anyway. Every year they publish their predictions of where the S&P 500 will close in the following year. And they are almost always wrong. See Figure 1 for the compilation of their predicted S&P annual growth rates compared to the actual values from the past five years.

Figure 1: S&P annual growth rates: actual vs predictions from JP Morgan, Credit Suisse, Morgan Stanley, Goldman Sachs and Bank of America Merrill Lynch

A few key takeaways:

  • In the past five years, the predictions were off. The actual annual growth rates did not fall within the range of predictions of these large investment banks.
  • JP Morgan tended to be the most optimistic, while Morgan Stanley tended to be the most pessimistic.
  • No one predicted COVID-19 in 2020, yet, everyone still underpredicted the market performance in 2020.
  • The prediction spread is becoming larger in 2021, reflecting heightened uncertainty of the year to come.

If these investment banks, with their army of analysts, cannot provide a reliable forecast of the stock market one year out – it shows that accurate, much less consistent, projections are implausible. 

Tesla announced its Q4 car delivery numbers

This past Saturday (January 2nd 2021), Tesla announced its latest quarter’s delivery numbers. The company delivered a combined 161,650 Model 3s and Ys and a combined 18,920 Model S sedans and Model X SUVs last quarter. Overall, Tesla delivered a record 499,550 vehicles in 2020, up 36% from 2019, which exceeded analysts’ expectation of 493,000, though still shy of the company’s initial target of 500,000. 

Despite the myriad of lockdowns at its production facilities in California and Shanghai, Tesla was still able to surpass expectations thanks to its ability to scale up production in China. 

What’s more, it is still early days for the company’s expansion in China. Just recently, Tesla announced that it will start producing and selling its Model Y in the Chinese domestic market, and aims to do so by undercutting the price of its Chinese competitors

Figure 2: Tesla quarterly vehicle deliveries

As we have written in the past, Tesla’s delivery numbers are highly anticipated by analysts since it is a leading indicator for its revenue. See Figure 3 for Tesla’s car deliveries and revenues. 

Figure 3: Tesla vehicle deliveries is a precursor to its revenue

This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms.  Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.

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