Abby Joseph Cohen
Over at Goldman Sachs, resident bull Abby Joseph Cohen on Dec. 14 attempted to call
the bottom, in so many words. She told clients that three imbalances impeded stock price
performance during much of 2000. But, she added, these are now largely correlated,
setting the stage for a more favorable market environment in 2001.
First, economic growth has slowed to a more sustainable pace, Cohen said, easing
pressures on inflation and interest rates. In addition, she said the S&P 500 is roughly 15
percent undervalued. Finally, Cohen said the wide valuation disparities between different
groups of stocks have dramatically narrowed, suggesting "more thoughtful allocation of
capital."
Cohen isn't alone. Edward Kerschner at UBS Warburg - another top ranked strategists
ranked by fund managers for Institutional Investor magazine, said on Dec. 9 that he's
holding to the S&P 500 at 1,715 at year-end 2001. The call represents a 30 percent
gain in the S&P 500 from the index's close on Dec. 15. Thomas Galvin at Credit Suisse
First Boston, another top ranked 'II' strategist, left his S&P 500 forecast unchanged at
1,600 on Dec. 11, representing a 22 percent return.
The market pullback, Kerschner told clients on the ninth, "has created one of the five
best buying opportunities of the past 20 years."
Those on the bearish side - such as Doug Cliggott at J.P. Morgan - see the S&P 500 at
1,400, an increase of 10 percent on Dec. 20.
Each camp interprets valuation differently to explain their bullish or bearish position,
which goes to show no real consensus has yet emerged on exactly how much is too much
to pay for U.S. large caps, and particularly the tech stocks.
Jay Pelosky, a global strategist at Morgan Stanley Dean Witter is less encouraged by his
P/E read. "We have felt for some time that we're entering a period of lower equity returns
on global basis," he said.
The firm's world equity index shows a trailing price-to-earnings ratio at 22, which stands
against a 30-year average of 17 times earnings. "Our markets are expensive," he said.
"We're only expecting 10 percent growth in operating earnings in the S&P 500 next year.
It's hard to see how equities can do much better than earnings growth."
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