Goldman's Cohen sees low double-digit equity returns
Reuters Story - February 09, 2000 19:50
NEW YORK, Feb 9 (Reuters) - Goldman Sach's influential analyst Abby Joseph Cohen on Wednesday forecast U.S. equity returns in the low double digits in 2000 and said Wall Street's performance will be "good, not great" amid increased volatility.
Repeating an earlier prediction, Cohen said that at end of the year, the fair value of the Standard & Poor's 500 index will be 1,525. That will be an increase of some 8-10 percent from the end of 1999, and will match profit-growth expectations for the S&P 500, she said.
"In 2000, we think the S&P 500 will generate operating earnings growth of at least 8 percent," Cohen said at a Goldman, Sachs & Co. annual foreign exchange conference.
"If anything, I believe that number is notably too low, and we therefore conclude that returns from the equity market will be low double digit in 2000. That will be a good year, that will not be a great year," Cohen said.
She said technology stocks, undervalued for most of the 1990s, were now appropriately priced and no longer overweighted in Goldman's model portfolios.
Goldman remains overweight in energy companies and some other cyclicals, Cohen said.
The financial services category, meanwhile, is "notably undervalued." Shares in some of these companies performed well last year but have been hit by fears relating to inflation.
Cohen said inflation was unlikely to be a problem for stocks in 2000, and said corporate "profits look great."
"We are completing the reporting period for the fourth quarter, and the numbers are staggering," she said. "Sixty-seven percent of companies in the S&P 500 reported fourth quarter earnings above expectations an those expectations were not wimpy, by the way."
But she said market volatility was likely to increase this year.
"When something is priced very cheaply, the volatility of the share prices is lower. And when something rises to fair value, the volatility lifts," she said.
"While we were enjoying those dramatically cheap levels of the stock market, the market was cheap and you could get nice returns with low volatility. 2000 will be more normal -- returns that are good, not great, and with a step up in volatility."
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