The Wise Men predictions for next year. Note one guy is calling for a 50% Nasdaq correction!
U.S. equity climb seen intact in 2000, Nasdaq vulnerable
By Amy Collins
NEW YORK, Dec 19 (Reuters) - Wall Street's bull run will continue into 2000, yet not as wildly unbridled as in 1999, according to market strategists, who expect technology shares to again lead markets after a possible retreat in the stampeding tech-oriented Nasdaq market.
Market sages said they foresee 2000 resembling 1999, with ''New Economy'' companies leading the digital convergence of technology, communication, information and entertainment , continuing to draw investor funds.
Peter Canelo, Morgan Stanley Dean Witter U.S. equity strategist, expects a 12 percent rise in the Standard & Poor's 500 index next year, and a similar gain in corporate earnings. As for yield on the long bond, he puts it at no more than 6.5 percent, while inflation should stay below three percent, said.
''Underlying these assumptions is the confidence that the vibrant productivity expansion of the past four year will continue in 2000 and beyond,'' Canelo concluded in his outlook for the year.
''That conclusion is well supported by the explosive demand for information technology, the increasing acceptance of the Internet, especially for business-to-business transactions, and the advent of broadband telecommunications. These trends should increase business efficiency, reduce distribution costs, and help keep a lid on prices, all enhancing productivity.'' Canelo's favored sectors for 2000 are retailers, energy and cyclicals, technology and financials while utilities, consumer staples and telecoms are his least favorite.
Jeffrey Applegate, chief investment strategist at Lehman Brothers. notes in his U.S. strategy forecast for 2000, ''Simply put, our forecast for 2000 is that the unprecedented continues to happen.''
At Lehman, the firm's model U.S. portfolio for 2000 is 80 percent in stocks, 10 percent in bonds and 10 percent in cash. The firm expects continued narrow leadership in the stock market and keeps its portfolio tilted toward large capitalization and global growth stocks.
Standard & Poor's, keeper of the widely watched S&P 500 index, is looking for its broad market measure to rise 13 percent next year, to end at 1,600. Industries identified as holding the greatest potential in 2000 are broadcasting, technology, health care, banks, semiconductor chip makers and telecommunications.
In 1999, seven of the 10 best-performing S&P industry groups for 1999 are technology and telecom related. ''The new breed of investor, unburdened by historical baggage, is flocking to these groups,'' Standard & Poor's reports in its ''2000 Annual Forecast''.
NASDAQ MAY RETREAT, THEN PRESS ON
Many analysts express trepidation about the sustainability of the Nasdaq market's rapid climb, particularly in the 1999 fourth quarter. With such a rapid run-up, prices are expected to head lower in 2000 before any drive higher.
Arnold Berman, technology strategist at SoundView Technology Group, said technology stocks will continue to do well, but likely fall short of the stellar performance of 1999, and noted the Nasdaq could be due for a correction early next year.
Tech companies poised to outperform, he said, are e-commerce firms and all types of communications companies including satellite, cable, wireless and Internet service providers.
Ricky Harrington, technical analyst and senior vice president at Wachovia Securities in Charlotte. N.C. called Nasdaq dangerously high, making it due for a drop of up to 50 percent by February.
''People are buying stocks for the wrong reasons. They're buying then simply because they are going up, not because (the companies) are making money on the fundamentals,'' Harrington said.
But the craze for all technology is likely to slow. ''We will settle back because the good news about technology and new paradigms will be built in,'' said Primark Decision Economic's senior economist, Pierre Ellis, who forecast the S&P500 to end year 2000 at 1,575.
''During the coming correction in Internet stocks, we do not anticipate big changes in our portfolio,'' says Lehman Brothers.
BABY BOOM DOLLARS ABOUND
Edward Kerschner, PaineWebber's chief investment strategist, said a big shift in investing characterized by Baby Boomer stock investing has barely begun. As such, cash flows into equities will continue for the next 10 to 15 years, he said, citing the impact of the generation born after World War II that is increasingly focused on growing retirement assets.
''The share of household assets in stocks historically has fairly closely followed the share of population aged 45 to 54. This segment of the population should reach a peak of 18.7 percent in 2007, and then stay close to that level for the next five years,'' Kerschner in his ''Outlook 2000'' report.
By year-end 2000, he sees the S&P 500 at 1,600, and the Dow Jones industrial average (^DJI - news) at 12,500. So far this year, the Dow has risen about 21 percent, while the Nasdaq composite is up an astounding 63 percent.
ECONOMY SEEN REMAINING SOUND
Most economists and analysts expect the United States economy, spending and inflation will continue at a promising pace.
Richard Babson, chairman of Babson-United Investment Advisors Inc., in Waterton, Mass., said ''We're looking for continued economic robustness next year.'' If uninterrupted through the next early part of 2000, the U.S. economy will in February reach the longest period of expansion ever.
''Consumer spending and confidence will remain high,'' said Alan Ackerman, the senior vice president and market strategist at Fahnestock and Co.
''A significant group of stocks that have been laggards this year could come around next year,'' Ackerman said, naming small- and mid-cap stocks, such as those in the Internet support sector.
Several firms are predicting the Federal Reserve will raise interest rates at least once during 2000 and that any hike could help yoke stocks.
''A major theme is that there are at least two more Fed rate hikes, which works against liquidity in a liquidity-driven market,'' said Gail Dudack, Warburg Dillon Read's chief investment strategist. She expects the Dow to end 2000 at 10,000, the S&P 500 to end at 1,300 and Nasdaq to finish at 2,700.
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