apparently, a copy of the W Report was leaked to Reuters. Hence, the following
story popped up today.
Poll: Strategists Say Stocks to Soar
By Per Jebsen
NEW YORK (Reuters) - Surprising as it may seem, U.S. stocks
are set to soar, according to Wall Street's chief strategists.
The Standard & Poor's 500 Index, a broad gauge of the market,
will rise 40 percent by year's end. The blue-chip Dow Jones
Industrial Average, by 33 percent. The tech-laden Nasdaq
Composite Index will surge an astonishing 80 percent.
Those predictions are the average of the year-end price targets
maintained by top market analysts at the big investment banks,
even after some recent forecast trimming. As a group, they are a
beacon of light and hope amid the market's thickening gloom.
The strategists believe investors have panicked and that a variety
of forces for good -- such as, paradoxically, investors' pessimism,
as well as lower interest rates -- will provide the foundation for a
broad rally.
``Watching the market now is like watching an episode of
Survivor,'' said Tobias Levkovich, a senior equity strategist with
Salomon Smith Barney, referring to the hit U.S. TV show in which
contestants vie with each other to avoid being voted off a tropical
island.
The reversal from the unthinking bullishness of a year ago, as well
as the recent rate reductions by the U.S. Federal Reserve Bank,
spell potential turnaround for stocks, he said.
``Historically, after three Fed cuts the market is up strongly over
the following 12 months,'' Levkovich said.
In the past, the S&P and Dow have risen 17 to 18 percent
following such cuts. Excluding a Depression-era series of cuts, the
average rebound for both indices has been several percentage
points higher, he said. The Federal Reserve enacted its third
recent reduction on Tuesday, lowering rates by 50 basis points.
MOST CONSERVATIVE
Levkovich is among the most conservative of the forecasters. Even so, he has a year-end target for
the S&P 500 of 1,450, and for the Dow of 11,750 -- roughly 25 to 30 percent above current levels.
On average, the 13 Wall Street strategists surveyed by Reuters expect the S&P 500 to reach 1,566
at the end of 2001. The index is currently trading at 1,118. Nine of those 13 who have a prediction
for the Dow believe it will rise to 12,467, up from 9,389 currently.
The five brave strategists who have ventured targets on the now slumping, once galloping Nasdaq
expect it to reach 3,410, almost double its current level of 1,898.
Some strategists -- including Ed Kerschner of UBS Warburg, Abby Joseph Cohen of Goldman
Sachs and Tom McManus of Bank of America -- also recently told clients to buy more stocks.
The optimism is especially pronounced given how far stocks have fallen. The S&P 500 entered a
bear market on March 12, when it closed more than 20 percent below its record high last year. This
year, it has fallen 23 percent.
The Dow, now at 9,389, is down 13 percent in 2001. On Thursday, it fell below 9,378 on an
intra-day basis, marking the greater than 20 percent plunge from its Jan. 14, 2000 closing high that
would qualify as a bear market. The Nasdaq is down 62 percent from its March 10 record high last
year.
JUSTIFY TARGETS
How then to justify such targets?
For starters, hedge. ``The number is etched in sand not granite,'' said Al Goldman, chief market
strategist for A.G. Edwards & Sons in St. Louis. ``If I get the direction right, I've done a good job.''
Principally, though, the strategists argue that prospects for equities are much brighter than they seem.
For instance, concluding stocks are overvalued by comparing their current price-earnings multiples
to those of previous bear markets is ``naive,'' according to UBS Warburg's Kerschner, the number
one-rated Wall Street strategist.
True, multiples are higher, but they deserve to be. Both interest rates and bond yields are lower now
than they were during 1987, when the S&P 500 last entered a bear market, or 1990, when the
index came close, Kerschner wrote in a March 18 note to clients.
Goldman's Cohen believes last year's ``imbalances'' in the market have by now been largely
redressed: investors are more risk-averse, margin debt has declined, and portfolio cash ratios have
risen.
Also, fears about the economy are overdone. The U.S. has the world's most productive workforce,
best-managed companies, mild inflation, and a large federal surplus, Cohen wrote in a March 7 note
to clients.
Investors have swung from ``irrational exuberance to irrational depression,'' said A.G. Edwards'
Goldman. ``The foundation for financial fortunes is made during bear markets.''
Stocks will rise because of the favorable long-term prospects for the U.S. economy and for the
expansion of corporate earnings, Goldman said.
The gloomiest of the top Wall Street strategists is J.P. Morgan's Doug Cliggott, who has a 1,400
year-end price target for the S&P, about 20 percent above current levels.
His advice to clients is filled with caution. Estimates for tech growth rates are too optimistic, so
buying tech stocks even with the Nasdaq at 2,000 is probably unwise, he advised on March 12. On
March 19, he warned that ``the earnings outlook looks pretty grim.''
Investors may do well to give him a hearing: last year, Cliggott proved the most accurate forecaster,
coming within less than two percent of the S&P 500's actual year-end close.
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