Ooops, Wall St's savviest minds called bottom too soon
(Reuters 03/13 13:13:26)
By Thi Nguyen
NEW YORK, March 13 (Reuters) - Even the best minds can make
dumb calls.
Goldman Sachs's Abby Joseph Cohen, one of Wall Street's
most influential strategists, last week told her clients to use
their cash to buy stocks. But if you had listened to her and
other big-time analysts, you would be poorer for it.
The stock market still was not close to a bottom when
Cohen, one of Wall Street's most respected strategists, told
clients to use their last cash and buy stocks before the market
opened March 7.
Since then the Standard & Poor's 500 Index <.SPC> , a broad
measure of the U.S. stock market, has dropped more than 6
percent and the tech-laden Nasdaq Composite Index <.IXIC> fell
12 percent. So far for the year, the S&P 500 has lost 10
percent while the Nasdaq is down 20 percent.
Wall Street's guiding lights say they do not try to call
short-term trends in the market. Their outlook is longer term
and they do not release reports based on day-to-day gyrations.
"We're strategists, we are not technicians," said Charlie
Reinhard, senior U.S. equity strategist at Lehman Brothers.
"It's very difficult to forecast the market bottom and we don't
change our asset allocations every week or every month."
But last week, many analysts may have jumped the gun.
Wall Street's No. 1-rated strategists, Edward Kerschner of
UBS Warburg, on March 8 told investors to put 66 percent of
their assets into stocks, up from 64 percent from his last
recommendation and 57 percent at the beginning of the year.
Global strategists last week also turned bullish on U.S.
stocks. Merrill Lynch's David Bowers and Morgan Stanley Dean
Witter's Jay Pelosky advised clients to buy U.S. stocks,
following months of sharp declines, a slide prompted by
concerns about the slowing economy and profit growth.
Still, most strategists base changes in recommendations on
6 to 18 month periods.
"We look at longer-term trends and we guide investors
through investment cycles," Lehman's Reinhard said, adding he
alters course based on big changes in economic and earnings
data.
"The Fed easing cycle or inflation data (could change our
thinking). Earning streams could also alter allocation
strategy."
THIS IS THE REAL BOTTOM
The last time Lehman changed its asset allocation was in
December, when it told clients to move 20 percent from cash to
bonds on expectations the Fed would soon lower rates.
But Reinhard is confident about Lehman's aggressive
allocation to stocks at 80 percent and said he will not
consider changing his portfolio any time soon, believing the
S&P 500 has or nearly has hit bottom.
Reinhard cites research showing the index touches a bottom
about three months after the Fed cut rates.
"We're very close if not already there," he said.
Other strategists joined Reinhard in predicting stocks are
near their lows.
"I buy stocks two or three times a year and hold them for a
couple of years," said Tom Galvin, CS First Boston's chief
investment officer. "I expect to buy stocks this week. It's a
good buying opportunity."
Galvin has maintained his aggressive allocation of 90
percent in stocks and 10 percent in cash, although he cut year-
end targets on the S&P 500, the Nasdaq and the Dow to 1,520,
3,000 and 12,000 from 1,600, 4,000 and 12,650, respectively
over the last two weeks.
"Technical analysis suggests that the Nasdaq can drop to
1,800, but I think we've done enough at this time," said
Galvin.
Currently, investors put some $250 million every week into
equity funds, about 12 times lower than the $3 billion of a
year ago.
"But investors are not bankrupt. They are just not
confident," said Galvin. "They're looking for dark clouds to
pass ... I think by the end of the year, investors will put
their money back to equity funds again."
((Thi Nguyen, Wall Street Desk, 212-859-1733))
REUTERS
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