It’s that time of the year again when the stock market pundits make their forecasts for ever rising stock prices in the coming year.
$96 oil, the housing and auto markets falling faster than the direst predictions, the consumer up to his eyeballs in debt and not likely to continue to be the engine of growth that it has been, mortgage defaults rising, decreasing job creation, rising unemployment, a depreciating dollar, large bank write offs, all point toward a slower economy, lower corporate profits and the potential for a recession. Election jitters could cause some capital gains selling.
The bulls will tell you that 2008 will be a very good year for the stock market because the falling dollar will increase the earnings of the multinationals. The growth abroad will continue although may be dampened by falling consumer demand in the U.S.. Productivity is likely to continue to increase corporate earnings. Actions by the Fed to lower interest rates coupled with an election year in the U.S. usually bring higher stock prices.
Not to be deterred the brokerage pundits usually call for growth in the major averages in the 8% – 20% area. This year is no different. Chief strategist of Bank of America, Tom Mcmanus has forecast a 1625 S & P 500 Index at year-end 2008. Sam Stovall, strategist at S & P sees a 12 % move In the Index. Not to be outdone, co- strategists David Bianco and Tom Doerflinger of UBS, are predicting the S & P to end 2008 at 1700.
Before you get too excited by these rosy forecasts, just remember that they always call for higher markets in the coming year.
Lets take a look at how two of them fared in 2007. The S & P Index started 2007 at 1418. Richard Bernstein, the chief investment strategist of Merrill Lynch called for ’07 to end the year with the S & P Index at 1570. It ended the year at 1468. Tobias Levkovich, the chief U.S strategist at Citigroup, called for 1600 on the S & P, and 14000 on the Dow. To boost his reputation for prescience, he went to an overweight of the financial stocks on September 10th.
My advice is to tread carefully with your investments. Cash can be king. The S & P Index grew by 3.5% in 2007. My cash equivalent investments, IE: money market funds, auction rates & short term Cd’s, paid between 4 1/2% – 6%. Not bad for cautious investing. RJB