Discuss strengths and weaknesses of the economic forecasting approaches used by Cambo and the chief economist. Discuss strengths and weaknesses of the economic forecasting approaches used by Cambo and the chief economist.

Jan Cambo is chief market strategist at a US asset management firm.
While preparing a report for the upcoming investment committee meeting, Cambo updates her long-term forecast for US equity returns.
As an input into her forecasting model, she uses the following longterm annualized forecasts from the firm’s chief economist:

Based on these forecasts, Cambo predicts a long-term 9.0% annual equity return in the US market. Her forecast assumes no change in the share of profits in the economy, and she expects some contribution to equity returns from a change in the price-to-earnings ratio (P/E).

Transcribed Image Text:

Cambo's Forecasting Approach Chief Economist's Forecasting Approach Strengths Weaknesses