Wall Street Forecasts for 2008
Posted on January 8, 2008 in the Commentary, Investing category
.Tis the season for the professionals on Wall Street to turn on their crystal balls and predict where they think the market is going in 2008. Here are some of their observations and favorite stocks (source: Business Week)
RALPH J. ACAMPORA, DIRECTOR OF TECHNICAL STUDIES, NEW YORK INSTITUTE OF FINANCE
According to Acampora the five-year-old bull market is tired. The Dow Jones industrial average (DJIA) has forged ahead, albeit fitfully. But relatively few stocks are hitting new highs, says the recently retired Acampora, who continues to teach technical analysis. Worse, the Dow Jones transportation average is struggling.
That’s often a sign something is amiss with the economy, says Acampora. With the Federal Reserve cutting interest rates, he thinks a traditional year end rally will spill over into the New Year. But he expects stocks to run out of steam soon after, precipitating a 10% to 20% sell-off that will make this summer’s 8% drop seem like a minor blip. In the second half of the year, Acampora looks for the bull to regain its strength, as economic growth, fueled in part by election year pump-priming, accelerates.
STUART T. FREEMAN, CHIEF EQUITY STRATEGIST, A.G. EDWARDS & SONS
The winner of BusinessWeek’s annual stock market forecasting survey last year, Freeman likes the outlook for stocks in 2008, mainly because he doesn’t see much else to get excited about. By Freeman’s reckoning, stocks are cheap today compared with U.S. Treasury bonds.
He expects the economy to avoid going into recession in 2008, but just barely. With investors fearful of an economic downturn, he believes the Dow will drop some 10%, to 12,120, by midyear. To play it safe, Freeman recommends sticking with large-cap consumer products companies, such as PepsiCo (PEP) and Procter & Gamble (PG), whose bottom lines typically hold up in tough times. These companies “are still generating earnings growth with a high degree of predictability.”
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL
Best known for advising clients to sell just before the 1987 stock market crash, Garzarelli is a big bull today. Like many others, she expects economic growth to be sluggish in the first half of the year before the impact of the Fed’s interest rate cuts starts to turn things around.
But while most are expecting modest stock market increases next year, Garzarelli is looking for something more: a 20% gain on the Dow and the S&P 500 stock index. Why? While most analysts are worried about negative earnings surprises, Garzarelli is betting that earnings will hold up: She says they will rise some 7%, as lower interest rates reduce the cost of borrowing for corporations and a weak dollar fuels strong export growth. Of the 14 indicators Garzarelli follows, which measure everything from investor sentiment to stock valuations, most are flashing favorable signals. ”
ROBERT ARNOTT, CHAIRMAN, RESEARCH AFFILIATES
Widely followed on both Wall Street and in academia, Arnott has a reputation for thinking outside the box. While most prognosticators expect stock prices, corporate earnings, and economic growth to post small gains in 2008, Arnott, whose money management firm is in Pasadena, Calif., thinks all three have nowhere to go but down. Why? He expects sliding home prices and rising mortgage defaults to prompt consumers to curtail spending sharply in 2008, pushing the economy into a mild recession. Moreover, he adds, with “wages at their lowest percent of GDP ever” and corporate profits at their highest level in 40 years, “how likely is it that we will see earnings surge from current levels without a political backlash?”
LASZLO BIRINYI, PRESIDENT, BIRINYI ASSOCIATES
Birinyi thinks the bull market that started in 2002 is still very much intact. He expects the current economic expansion to continue, with 5% corporate earnings growth helping to propel the Dow to 15,000 by the end of 2008. The signs of a market top, which include speculative fervor and rising stock valuations, “really aren’t present,” he adds. At 15 to 18 times estimated earnings—the exact number depends on how you measure earnings—stock market values are neither cheap nor expensive. If the market were a traffic light, Birinyi says, it would be flashing a yellow signal now.
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