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Richard Melville
New York, Dec 11: Next year New York's stock market traders may have to say `so long, easy street.'
Wall Street is all but assured of a fourth straight year of double-digit percentage gains in 1998 but strategists polled by Reuters forecast gains in coming years will be harder to come by as the stock market turns into mean street.
``You have had the Dow, S&P 500 And Nasdaq returning above normal returns and I think they will regress to a more normal rate,'' said president James Awad of Awad & Associates.
Awad's forecast is for the Dow to rally to 9600 in 1999, about 6.5 per cent above its close of 9016 on December 4, when the Reuters poll closed.
The call, which represents a regression to levels much closer to the market's historic mean return, also placed Awad in the middle of the pack among Wall Street strategists polled by Reuters on December 3-4 on their outlook for the next two years.
The poll suggests analysts believe the stock market's furious gains -- the Dow is up about 14 per cent for the year, but more significantly nearly 20 per cent from its late-summer slide -- have been borrowed against 1999.
Back in September, strategists had forecast a rally at or near double-digit percentage levels for 1999. Now, the mean call is for a rally of less than five per cent to 9455. The median forecast calls for an 8.4 per cent rally.
The Standard & Poor's 500 and Nasdaq Composite are seen scratching out even smaller gains: about 3.5 per cent for Nasdaq and 2.3 per cent for the S&P, based on the mean outlook. Even scanter gains are expected in 2000.
One particularly bearish call on 1999 came from AC Moore, chief investment strategist at Principal Financial Securities, whose prediction of a Dow at 6800 by the end of 1999 was a particular drag on the mean.
Moore predicts pullbacks of 20-25 per cent in the Dow, S&P 500 and Nasdaq in 1999, arguing, ``markets are overvalued at this point, and at some moment we are likely to see an adjustment as earnings take their toll.''
Overall earnings at the largest US companies in the third quarter of 1998 declined versus a year ago, the first time that has happened since 1991.
For the most part, however, analysts are bullish, if moderately, in their expectations.
Prudential Securities strategist Greg Smith and Lehman Brothers strategist Jeffrey Applegate both set their Dow targets at 9800 for 1999, a level Smith said the blue chip average was likely to surpass before a late year pullback.
``My thinking on 1999 is that with all the interest rate cuts that are going on, we're likely to see very good support for the stock market,'' Smith said.
``I have to allow for a little bit of uncertainty for year 2000,'' Smith added, ``so maybe sometime in the middle of the year we hit 10,000, and maybe we pull back to 9800 by the end of the year.''
Expected economic disruptions from possible problems in computers coping with the date change to 2000 influenced several forecasts and led by chief investment strategist Roy Blumberg at First Allied Securities, to predict a down year in 2000.
Blumberg called stocks ``fundamentally expensive'' at current prices.
``I'm looking for modest gains in 1999,'' Blumberg said, forecasting increases of about eight per cent on the Dow and seven per cent on the S&P. He added that, ``In 2000, year 2000 compliance will cause some minor disruption.''
The market's regression to a performance closer to its long-term mean does not necessarily indicate declines across the board. Small caps, for example, may benefit.
``These stocks have underperformed dramatically of late and will have to post disproportionately large gains just to bring them back to their mean,'' Awad noted.
And technical analyst Frank Gretz at Shields & Co, said he expects a 10 per cent gain out of Nasdaq in 1999 even as he calls for a 10 per cent decline in blue chips.
``Technology stocks are going to have a great year even if the large caps do not,'' Gretz said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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