What About The Macroeconomy?

Macro is intoxicating and mostly unhelpful for timing portfolios. The peer‑reviewed literature is brutal on forecasting equity premiums with macro variables. Goyal and Welch (2008) re‑examined a shelf of alleged predictors and found that out‑of‑sample, they largely failed to beat a simple historical average.

Ivo-welch Research.pdf

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Even the big institutions struggle. IMF and World Bank research shows multi‑year growth forecasts tend to be upward biased and errors blow out in volatile periods - precisely when investors crave certainty. IMF forecast error studies: 

IMF WEO macroeconomic forecasts panel data.pdf

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IMF WEO accuracy review 2025: 

An Evaluation of World Economic Outlook Forecasts: Any Evidence of Asymmetry?.pdf

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And the macro‑to‑markets link isn’t clean. Jay Ritter’s work - reinforced by later studies - documents the weak or even negative correlation between GDP growth and subsequent stock returns across countries. Fast GDP doesn’t guarantee fast equity returns, because dilution, capital intensity and value capture matter. U.S. productivity growth has been a quiet driver of wage gains and inflation stability - a more reliable foundation than GDP forecasts for long-term market resilience. Ritter 2005: 

Economic-growth-and-equity-returns-2005.pdf

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Emerging Markets Returns: 

Emerging-Markets-Returns.pdf

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So the Great Investments Programme stance is pragmatic. We do respect macro - mainly as a risk‑management input and for scenario analysis - but we don’t pretend to have a crystal ball. The portfolio engine leans on what the evidence says has signal over sensible horizons: valuations as a probabilistic guide, base‑rate returns by asset class, factor exposures with proven long‑term premia, and strict rules around rebalancing. Vanguard outlook:

Vanguard economic and market outlook for 2025.pdf

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In short: macro makes great conversation and poor triggers. We build for resilience, not clairvoyance.

Sources:  Goyal & Welch 2008: https://www.ivo-welch.info/research/journalcopy/2008-rfs.pdf ; IMF forecast accuracy : https://www.sciencedirect.com/science/article/pii/S2352340924007662

 and https://elibrary.imf.org/downloadpdf/view/journals/001/2025/031/001.2025.issue-031-en.pdf

; Ritter 2005: https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf

; Hsu et al. 2022: https://site.warrington.ufl.edu/ritter/files/Emerging-Markets-Returns.pdf

; Vanguard 2025 outlook : https://corporate.vanguard.com/content/dam/corp/research/pdf/isg_vemo_2025.pdf Disclaimer: This article is provided for educational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any security. The views expressed are based on publicly available research, and may not reflect the latest market developments. All forecasts, projections, or estimates referenced are subject to change and carry inherent uncertainty. Past performance is not a reliable indicator of future results. Investors should consider their individual circumstances and, if necessary, consult a qualified financial adviser before making any investment decisions. Alpesh Patel OBE www.campaignforamillion.com