If you’ve read my articles before you know that I like to poke fun at Wall Street analysts and use them as a contrarian indicator. Most of the time that’s pretty easy, because they are wrong more often than right.

Wall Street is always way to optimistic, but something changed a couple of years ago (we all know what changed, more about that later). Surprisingly the one-trick pony rosy forecasts have been pretty spot on. Despite three serious correction since 2009, stocks eventually recovered to reach and surpass analyst estimates.

According to Bloomberg data, the average year-end price target for the S&P 500 is currently around 1,400, about 2% below current prices (a few days ago it was 5% below). Stocks will actually have to drop to get in line with analysts forecasts, that’s rare.

One would think that’s bullish from a contrarian point of view, but it isn’t.

Forecast Mean Reversion Ahead?

Lets look at prior examples when analyst forecasts weren’t bullish enough to keep up with the stock market. Analysts’ forecasts also trailed stocks before the 2000 and 2007 market top, in late 2009, late 2010 and early 2012.

Each prior instance occurred before a sizeable top. The S&P 500 didn’t decline immediately, but several months later any gains were given back every single time it happened (going back 13 years).

Goldman Sachs’ chief US equity strategist, David Kostin, sees the S&P 500 at 1,575 by next year. Oppenheimer’s John Stoltzfus sees 1,585, Bank of America’s Savita Subramanian sees 1,600 and Citigroup’s Tobias Levkovich expects 1,615.

The numbers seem somewhat arbitrary to me, but the common denominator of 15 predictions tracked by Bloomberg is the expectatian of new all-time highs. Is that too much groupthink?

It just might be. In February 2009, a similar cohort of analysts rapidly ratcheted down their end of year price targets and earnings expectations. Stocks bottomed in March and haven’t looked back since.

From blunder to crystal ball, what change made one-trick pony Wall Street analysts look like geniuses?

The non-scientific but accurate reason is QE and other liquidity shenanigans facilitated by the Federal Reserve and ECB. Forecasting a Fed supported market has proven to be like forecasting weather in a green house. Always warm, always dry, and mostly sunny.

Ironically history suggests that periods of accurate or too low analyst predictions tend to lead to some sort of top. Poor analysts, they just can’t earn credibility. Fortunately for them Wall Street bonuses are the highest they’ve been in years.