LOL! Even Wall St's Savviest Make Bad Calls
By Thi Nguyen
NEW YORK (Reuters) - Even the best minds can make dumb calls.
Goldman Sachs's Abby Joseph Cohen, one of Wall Street's most influential strategists, last week told her clients to use their cash to buy stocks. But if you had listened to her and other big-time analysts, you would be poorer for it.
The stock market still was not close to a bottom when Cohen, one of Wall Street's most respected strategists, told clients to use their last cash and buy stocks before the market opened March 7.
Since then the Standard & Poor's 500 Index (.SPC) , a broad measure of the U.S. stock market, has dropped more than 6 percent and the tech-laden Nasdaq Composite Index (.IXIC) fell 12 percent. So far for the year, the S&P 500 has lost 10 percent while the Nasdaq is down 20 percent.
Wall Street's guiding lights say they do not try to call short-term trends in the market. Their outlook is longer term and they do not release reports based on day-to-day gyrations.
``We're strategists, we are not technicians,'' said Charlie Reinhard, senior U.S. equity strategist at Lehman Brothers. ``It's very difficult to forecast the market bottom and we don't change our asset allocations every week or every month.''
But last week, many analysts may have jumped the gun.
Wall Street's No. 1-rated strategists, Edward Kerschner of UBS Warburg, on March 8 told investors to put 66 percent of their assets into stocks, up from 64 percent from his last recommendation and 57 percent at the beginning of the year.
Global strategists last week also turned bullish on U.S. stocks. Merrill Lynch's David Bowers and Morgan Stanley Dean Witter's Jay Pelosky advised clients to buy U.S. stocks, following months of sharp declines, a slide prompted by concerns about the slowing economy and profit growth.
Still, most strategists base changes in recommendations on 6 to 18 month periods.
``We look at longer-term trends and we guide investors through investment cycles,'' Lehman's Reinhard said, adding he alters course based on big changes in economic and earnings data.
``The Fed easing cycle or inflation data (could change our thinking). Earning streams could also alter allocation strategy.''
THIS IS THE REAL BOTTOM
The last time Lehman changed its asset allocation was in December, when it told clients to move 20 percent from cash to bonds on expectations the Fed would soon lower rates.
But Reinhard is confident about Lehman's aggressive allocation to stocks at 80 percent and said he will not consider changing his portfolio any time soon, believing the S&P 500 has or nearly has hit bottom.
Reinhard cites research showing the index touches a bottom about three months after the Fed cut rates.
``We're very close if not already there,'' he said.
Other strategists joined Reinhard in predicting stocks are near their lows.
``I buy stocks two or three times a year and hold them for a couple of years,'' said Tom Galvin, CS First Boston's chief investment officer. ``I expect to buy stocks this week. It's a good buying opportunity.''
Galvin has maintained his aggressive allocation of 90 percent in stocks and 10 percent in cash, although he cut year- end targets on the S&P 500, the Nasdaq and the Dow to 1,520, 3,000 and 12,000 from 1,600, 4,000 and 12,650, respectively over the last two weeks.
``Technical analysis suggests that the Nasdaq can drop to 1,800, but I think we've done enough at this time,'' said Galvin.
Currently, investors put some $250 million every week into equity funds, about 12 times lower than the $3 billion of a year ago.
``But investors are not bankrupt. They are just not confident,'' said Galvin. ``They're looking for dark clouds to pass ... I think by the end of the year, investors will put their money back to equity funds again.'' |
