Analysts rarely adjust price targets around Federal Reserve meetings

Stock analysts rarely adjust their price targets around interest-rate decisions, the University of Toronto said of a Rotman School of Management study. A price target is an analyst’s forecast of a stock’s future price, and investors use it when deciding whether to buy or sell. The study looked at meetings of the Federal Reserve, the US central bank that sets interest rates, between 2000 and 2020. Yet analysts changed their targets for only 18.5% of companies in the two weeks before and after those meetings.

Forecast inaccuracy rose about 13% after rate hikes and more than 16% after cuts. The researchers blame a failure to adjust the discount rate, which converts a stock’s future value into today’s money by weighing risk, interest rates and the cost of tying up money.

But inaccuracy was less pronounced at investment houses with macroeconomists on staff. The research did not, however, examine why analysts fall short in adjusting their targets.

Sources: University of Toronto