Few market analysts called the right outlook for 1998

Journal Record, The (Oklahoma City), Dec 30, 1998 by Deborah Stern Bloomberg News

NEW YORK -- While 1998 was yet another booming year for the U.S. stock market, few market strategists called it right.

Charles Clough, Merrill Lynch's chief investment strategist, said at the end of 1997 that the bull market was ending. Morgan Stanley Dean Witter's chief market strategist Byron Wien predicted the Dow's early surge and subsequent decline this year -- for the wrong reason.

Goldman Sachs chief investment strategist Abby Joseph Cohen forecast the Dow's rise but missed the midyear decline and the plunge of small-company stocks. Gail Dudack, Warburg Dillon Read's traditionally bearish chief investment strategist, forecast the Dow would end the year in the 7,500-8,000 range. It's unrealistic to expect analysts to predict the market with pinpoint accuracy, investors said, especially in a year that included the impeachment of President Bill Clinton and the near-collapse of hedge fund Long-Term Capital Management. "They're worthwhile listening to, but in the long run you've got to have your own position and can't blindly adopt someone else's," said John Lennon, a money manager at Colonial Management Associates, which oversees $17 billion. Reality check: The Dow was trading above 9,200 Tuesday, with just two trading days left in the year. The Standard & Poor's 500 Index is on pace for an unprecedented fourth straight year of gains exceeding 20 percent. Merrill's Clough a year ago urged investors to buy U.S. Treasury bonds and Asian stocks for 1998. The 30-year U.S. bond returned 17.6 percent so far, including price gains and reinvested interest payments. But Asia? Hong Kong's benchmark Hang Seng Index is down 4.6 percent for the year, and that's one of the better Asian markets. Morgan Stanley's Wien predicted the Dow would soar to 9,000 in the first half, then drop back to 7,000 later in the year as inflation pushed interest rates higher. The Federal Reserve has lowered U.S. interest rates three times in September and October, and inflation was dormant. A few pundits were more accurate. Barry Hyman, senior market strategist at Ehrenkrantz King Nussbaum, predicted the Dow would reach 9,300 by midyear, with a pullback in the second half and 9,150 by the end of the year. Merrill chief market analyst Richard McCabe predicted record highs early in 1998, followed by a substantial decline and then a recovery. Laszlo Birinyi, proprietor of a Greenwich, Conn., market research and money management firm, predicted correctly that the S&P 500 would surpass 1,200 this year. But he's still about 7 percent short on his forecast that the Dow Jones average would reach 10,000. Prudential Securities analyst Ralph Acampora, who studies indicators such as share prices and volume, did predict a market decline in 1998 -- and he was right about its duration. Still, he confused matters by changing his estimates so often. Forecasters won't stop forecasting. "We remain comfortable that 1999 will be another year of corporate profit growth," Goldman's Cohen told clients in a conference call. Cohen, who has been among the most accurate forecasters in recent years, said the Dow could rise to 9,850 and the S&P 500 to 1,275 by the end of next year. Companies in the S&P 500 are likely to see their earnings rise 5 percent to 7 percent, she said. Birinyi said the S&P 500 will exceed 1,500 and the Dow will pass 12,000. Birinyi studies "money flow." Are investors putting more money into stocks as their prices rise than they take out when prices fall? For the largest stocks, the answer is yes, according to Bloomberg analytics. Merrill's forecasts for next year are less bullish: Clough said profits from companies in the S&P 500 will decline by 5 percent in 1999, and sees little gains -- if any -- in major U.S. stock indexes. McCabe said the markets in the United States and Europe may slump in the first half of 1999. Acampora gives himself wide leeway in his 1999 forecast, saying the Dow will range between 7,800 and 11,500 and the S&P between 1,050 and 1,525. He makes no apologies for his frequent forecast modifications. "That's what they pay me for," he said earlier this month. "The question is, do (stocks) crash and burn? The answer is no. We had our crash and burn this summer." Investors say that while the predictions for 1999 are no more the final word than this year's, they are valuable. William Miller, president of Baltimore-based Legg Mason Funds, said he uses the forecasts to get a general sense of the economic and market environments. "We're happy if we can understand what's going on, never mind what's going to happen," he said.