-UBS PaineWebber's strategist, Ed Kerschner, expected the S&P 500 to climb 35% to 1,600 in 2002 - almost twice what it is now. Abby Joseph Cohen was looking for the S&P to reach 1,300 by the end of 2002. For a while - a very short while - the bullish forecasts seemed to be on target. Stocks rallied in January of 2002, which seemed to validate the assurances by Wall Street strategists that the market would not - indeed, could not - fall for three straight years. Alas, the January rally faded and the universally bullish strategists were once again, universally wrong.
- Jim Stack, editor of Investech Research, examined the stock market forecasts for 2002 offered by 22 panellists appearing on Wall Street Week with Louis Rukeyser. "Not one analyst guessed that the Dow would close 2002 under 10,000 (let alone under 8,400)," Stack writes. "That followed an equally embarrassing year in 2001, when not one of the 22 panellists thought the Dow would close under 11,000 (it actually finished at 10,021)."
- For the record, of the 22 panellists on Rukeyser's show to make a forecast, Marty Zweig called it best, with his prediction that the Nasdaq would finish the year at 1,700. Most forecasts were 700 to 1,000 points higher than Zweig's. The Nasdaq's actual closing level at year-end was 1,335.
After such an abysmal record of forecasting, are the strategists acknowledging their error and adopting a bit of humility? Of course not. They are simply teeing up their new bullish forecasts and letting them fly, just like they did in 2000, 2001 and 2002.
- Unfortunately, richly priced stocks tend to fall, not rise...And the stock market is still pretty pricey. "U.S. stocks may have already had their January rally," Bloomberg's Justin Baer grimly predicts. "The Standard & Poor's 500 Index jumped 3.3 percent during the first two trading days of 2003. That's more than double the average for the month during the past half-century, according to Ned Davis Research."
- Bloomberg's Baer bases his downbeat call on a familiar litany of non-bullish items like disappointing corporate earnings, soaring oil prices and saber-rattling in North Korea. Baer didn't mention the fact that the stock market still seems pretty richly priced at 30 times earnings. But he could have. Even after three straight down years, US stocks are expensive. At best, they aren't cheap.
- And yet, Wall Street strategists predict higher share prices ahead in 2003, just like they did in 2000, 2001 and 2002. In fact, they've been predicting pretty much the same thing year after year, ever since there was an actual wall on Wall Street. Al Goldman of AG Edwards, Joe Battapaglia of Ryan Beck & Co., Global Partners Securities' Peter Cardillo and UBS's Tracy Eichler are among the non-descript gaggle of strategists who are predicting gains that range from 8.5 to more than 20 percent.
- "The last time the market fell for four years in a row was in 1929-1933," says one hopeful strategist, "and, by no stretch of the imagination, do we see economic conditions comparable to that in the period ahead." That's a comfort. Aren't these the same folks who "by no stretch of the imagination" foresaw the stock market falling over the LAST three years?
- The hopeful strategist concludes, "Strategists who guessed wrong for the last three years should have the odds with them for 2003." Unfortunately, the forecasters in 2002 also believed that the law of probability was on their side. And it was. But the stock market fell anyway. Richly priced stocks tend to fall...And those are the only odds that an investor should care about.
