QUOTE = Around the turn of each year forecasts are made for the following year. I find making predictions amidst so much government interventions to be particularly difficult. In addition, we so called “experts” have a horrendous forecasting record. Just as a reminder: in late December 2007 Barron’s published an article titled “A bullish call — Wall Street’s seers forecast more gains for stocks next year” (see Barron’s Online, December 17, 2007) in which 12 well-known strategists listed their 2008 earnings estimates and year-end 2008 price targets for the S&P 500.
The estimates were as follows:
Richard Bernstein, Merrill Lynch: 1525,
Thomas Lee, JP Morgan: 1590,
Tom McManus, Bank of America: 1625,
Ian Scott, Lehman Brothers:1630,
Larry Adam, Deutsche Bank: 1640,
Abhijit Chakrabortti, MorganStanley: 1650,
Jonathan Morton, Credit Suisse: 1650,
Abby Cohen,Goldman Sachs:1675,
Tobias Levkovich, Citigroup: 1675,
David Bianco, UBS Securities:1700,
Jonathan Golub, Bear Stearns: 1700,
Francois Trahan, ISI Group:1750.
Their 2008 S&P earnings estimates ranged from US$85.30 to US$101.21 per share (the average forecast predicted a climb of 4% to US$92 per share). None of the strategists predicted a recession and Tobias Levkovich believed that stocks were “screamingly cheap relative to bonds” (at the time the S&P 500 was at 1464). Similarly, Abby Cohen noted that the S&P 500 was trading at just 15.6 times average 2008 estimated earnings - well below the average P/E of 18.6 times earnings during periods over the past 57 years when inflation was at similarly muted levels.
For 2009, these “experts” now expect the S&P to increase to around 1100. |
