Top Forecasters Galvin, Birinyi See More Gains for
U.S. Stocks in 2000
By Deborah Stern
Most Accurate Forecasters of 1999 See Gains in U.S. Stocks
New York, Jan. 2 (Bloomberg) -- The two Wall Street
forecasters who came closest to the mark in 1999 both expect the
bull market to continue in 2000.
Thomas Galvin, chief investment officer at Donaldson, Lufkin
& Jenrette Inc., sees the Dow Jones Industrial Average to close
2000 at 13,000 -- a 13 percent gain from its 1999 close.
''We are in the early stages of a multiyear cyclical profit
recovery,'' Galvin wrote in a report to clients. Hie favorite
industry groups for 2000 are technology, telecommunications and
health care.
Galvin's year-ago prediction that the Dow would close the
century at 11,000 was 500 points too low. The Dow finished the
year at 11,597.12, up 2,315 points -- a 25 percent gain.
Galvin's call put him in a tie with Laszlo Birinyi, president of
Birinyi Associates Inc., who was about 500 points off in the other
direction with a forecast of 12,010.
Birinyi, who heads his own market-research and money-
management firm in Westport, Connecticut, expects the Dow to reach
14,000 by the end of 2000, a 22 percent gain.
While neither Galvin nor Birinyi hit the mark exactly,
their forecasts weren't far off, considering that the Dow rose at
least 100 points in one trading day of five last year. They did
correctly guess that the Dow average would reach 11,000, unlike
most of their fellow prognosticators. Eight of the 11 strategists
who gave forecasts to Bloomberg News at the end of 1998 expected
the Dow to finish at or below 10,000.
''The real point isn't to get too terribly concerned about
the market, but to put out some potential for investors to strive
for,'' Birinyi said.
With his latest call, Birinyi, once again, is in the
optimists' vanguard. Only Prudential Securities Inc.'s Ralph
Acampora has a prediction in that range: He sees the Dow between
13,500 and 14,000 at the end of this year.
Guessing the Nasdaq
With the Nasdaq Composite Index grabbing more attention with
unprecented gains -- its 84 percent rise in 1999 was the best ever
for a major U.S. index -- a handful of strategists, including
Birinyi, gave forecasts for it.
Birinyi sees the Nadsaq little changed at 4,080 by the end of
2000.
He is still bullish on computer-related stocks -- America
Online Inc. has soared some 1,800 percent since he first
recommended it to investors in July 1997. Even so, he said in the
middle of last month he plans to trim some of his Internet-related
shares, including AOL, as they had already rallied on optimism
that they'll ride out computer difficulties related to the
millennium changeover.
Galvin and Birinyi are close on their 2000 forecasts for the
Standard & Poor's 500 Index: Galvin sees the index at 1680, a 14
percent gain; Birinyi expects 1700, a 16 percent advance.
Birinyi was the more accurate of the two last year,
predicting the S&P 500 would close the year at 1500. Galvin
projected 1300. The index closed Friday at 1469, up 20 percent for
the year.
Direction
While rewards come to the strategists who get it right, some
investors say they don't take any of them too seriously.
''It's impossible for any of the talking heads to predict
accurately where the market is going, specifically when it relates
to time and magnitude,'' said Michael Holland, chairman of Holland
& Co. ''I always feel blessed if I can just guess the direction.''
Abby Joseph Cohen, chief investment strategist at Goldman,
Sachs & Co., who built a reputation as a conservative yet accurate
forecaster of the market's direction, lived up to the conservative
part last year with a forecast of 9850 for the Dow average and
1275 for the S&P 500.
This year, Cohen sees 12,300 for the Dow and 1,525 for the
S&P 500. Returns should be more in line with historical trends,
she said -- an 8 percent increase in the S&P 500, below the 20
percent and 30 percent returns of the past four years.
''We expect stock prices to reach new highs in 2000,'' Cohen
said in a report to clients last month. In a change from her
previous tone, though, she said Goldman's economists predict ''a
mild-mannered rise'' in inflation.
Financials Attractive, Cohen Says
Cohen said financial services companies and cyclical
industries are attractive stocks for 2000, and she sees value in
small-cap stocks. She expects profit growth of 8 to 10 percent for
companies in the S&P 500 Index.
Cohen's profit forecast last year turned out to be too timid;
she expected 5 percent to 7 percent profit growth for companies in
the S&P 500 in 1999. In fact, earnings are on course for a 17
percent gain, according to the average forecast from analysts
polled by First Call/Thomson Financial.
In her reports, Cohen cautions investors to ignore ''the
unintended precision'' of her price forecasts. Rather, she
suggests investors refer to them for a general idea of the
market's direction and the possible range of gains and losses. She
says she purposely sets targets that can be achieved.
Many strategists got parts of their forecasts right in 1999.
Jeffrey Applegate, Lehman Brothers Inc.'s chief investment
strategist, thought the Federal Reserve would lower interest rates
in 1999; policy-makers raised them three times. He was correct,
though, that growth stocks would beat value and that large-
capitalization shares would outperform small stocks.
Applegate, who adjusted his Dow and S&P forecasts three times
in 1999, expects the Dow to end 2000 at 12,750 and the S&P to
reach 1,600.
Broadening Seen
Barry Hyman, chief market strategist at Ehrenkrantz King
Nussbaum, expected 10,100 on the Dow and 1,370 on the S&P for
yearend 1999. He incorrectly predicted the Fed would do little to
interest rates.
He was right, though, in forecasting a market slump of 8
percent to 10 percent in the late summer of 1999. On Aug. 10, the
Nasdaq was 13 percent below its July 16 record, more than the 10
percent Wall Street considers a ''correction,'' and the S&P 500
had fallen 9.7 percent from its July high.
For 2000, Hyman expects 12,950 on the Dow and 1,668 on the
S&P. ''Investors have thrown aside everything but technology and
the Internet,'' he said, In 2000, the market should broaden out to
include shares in industry groups investors have been avoiding,
including financials and pharmaceuticals, he said.
''If you're expecting growth like we've seen in technology,
don't hold your breath,'' because pharmaceuticals and financials
grow at a slower pace, he said.
Charles Clough, chief investment strategist at Merrill Lynch
& Co., forecast that major stock indexes would be little changed
in 1999 amid lackluster profits. He also expected bonds to gain.
Instead, 30-year government bonds had their worst performance
since regular sales of the securities began 22 years ago.
Merrill said in August that Clough would be stepping down at
the end of this year to pursue other interests.
Even with Clough's departure, bears haven't become extinct on
Wall Street. Edward Yardeni, chief economist at Deutsche Bank
Securities Inc., was still maintaining at the close of 1999, as he
had for more than a year, that there's a good chance software
glitches related to the Y2K computer bug will lead to a global
recession.
Most people in the financial world, from Federal Reserve
officials to Big Board officials, insist there will be few
computer malfunctions -- if any -- when U.S. markets open for
business tomorrow. |
