Barrons: 2007年股市展望

henry · 发表于 2006-12-11 10:41:14

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class=verdana>FOR ALL THE STOCK MARKET'S TROUBLES ALONG THE WAY, 2006 is ending in positively agreeable fashion for investors. And this agreeable market has fostered plenty of agreement among Wall Street handicappers that 2007 will be, you guessed it, another decent year for stocks.
Federal Reserve Chairman Ben Bernanke survived his probationary period.
The housing market tanked. The Democrats snatched control of Congress in a nasty midterm election, and Americans were assaulted daily by reminders of a brutal war in Iraq. Through it all, except for a brief and scary spell last summer, investors have enjoyed a powerful -- and, so far, tireless -- rally.
Were the book to close today on 2006, the major indexes would have notched their fourth straight year of gains, with returns above the long-term average, at that. The Standard & Poor's 500 stock index is up 12.7% to 1407 year to date, and its total return with reinvested dividends approaches 15%. That's more than double the total return for the Dow Jones Corporate Bond Index and triple what 10-year Treasuries have delivered.<IMG class=imglftbdy height=272 alt=[graphic] hspace=0 src="http://online.barrons.com/public/resources/images/BA-AH201_out_20061208140545.jpg" width=245 align=left border=0>
The Dow Jones Industrial Average is ahead by 14.6%, to 12,278, and in October hit a new all-time high, more than six years after first surpassing 12,000. And while lagging a bit owing to the sluggish performance of mega-cap technology shares, the Nasdaq Composite has gained more than 10%.
Perhaps it's a bit imprecise to say investors "enjoyed" this year's generosity, as professional investors have had a bear of a time keeping pace with the bull run. More than 70% of active large-cap fund managers were trailing the market as of Oct. 31. To have exploited the year's twists and turns fully, one would have had to bet heavily on a commodity boom until May, a sharp slowdown and commodity bust into summer and a recovery led by consumer spending this fall.
What's more, much of the fuel for the recent rally was provided by stubborn short sellers, who expected the market to swoon into the midterm elections, as history suggested it would. Their plans foiled, the shorts were forced to cover their positions, sending stocks even higher.
The market's gains are all the more impressive given that all the year's upside, and more, has come since midyear, when concerns about slower economic growth and commodity-fueled inflation culminated in an 8% pullback in the indexes, the largest decline of the bull market that began in late 2002. Stocks have risen in each of the past five months and in 11 of the past 12.
This winning streak so far has exceeded the forecasts of all but one of the Wall Street strategists surveyed by Barron's a year ago (Prudential's Ed Keon), and has emboldened this year's group to pencil in still more upside for '07. Collectively, the Street's forecasters are looking for an 8% gain (that's both the average and median prediction), which would place the S&P 500 at around 1520 by year end, on the threshold of its all-time record of 1550 set in early 2000.
Neatly summing up the group's general view, Goldman Sachs' longtime chief investment strategist, Abby Joseph Cohen, says: "Share prices properly reflect a favorable fundamental picture for 2007. Growth is moderating, inflation pressures are abating and the [Federal Reserve] is expected to maintain a friendly stance. Equity valuation is supportive." Cohen thinks the S&P 500 can rise 10%, to 1550 in a year.
"We're cautiously optimistic," says Michael Ryan, chief strategist for the wealth-management group at UBS, who has an S&P target of 1500. "The market is fairly valued, at a level where neither bear nor bull markets usually begin."
Says Henry McVey at Morgan Stanley: "Stocks look cheap relative to bonds at current levels. When you have a 6.5% earnings yield [the inverse of the price-earnings ratio], and a 4.5% bond yield, we want to own equities."
WHATEVER THE VALUE of the Street's so-called experts in an inherently unpredictable world, it's always worthwhile to understand where the consensus sits, where the play callers are in broad agreement and, therefore, what areas are susceptible to surprise or even shock.
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<TD class=medcptnocrd>A Three-peat for Energy? Energy has a shot at a third straight year as the best-performing sector, a rare feat. Dark-horse contender telecom is its only rival.</TD></TR></TBODY></TABLE>
For starters, each of the nine strategists featured in this story is expecting an up year for stocks, as are numerous others whose outlook Barron's solicited. Often there is at least one bear in the group, and last year there were two. Contrarians might argue that the Street is too happy for the market's good.
That said, no one is calling for huge upside. The most ardent bull -- Ed Keon, again -- thinks the S&P can rise 13%. Everyone else is bunched between 2% and 10%. In this post-bubble environment, strategists feel scant motivation to make audacious forecasts.
Likewise, there's a tight range of opinion about several aspects of the current outlook. All the strategists see 10-year Treasury yields of 4.5% to 5.10%, and all but one firm -- JPMorgan -- is calling for the Fed to ease. Yet a majority assumes either a flat yield curve or one that remains inverted by the end of '07. Clearly, the crowd would be unprepared for any bond-market volatility and floored if the Fed did nothing, or worse, tightened.
To summarize the prevailing view, the economy is in a classic midcycle slowdown, engineered by the Fed's 17 rate increases through last June and abetted by slumps in the housing and auto markets. Economic growth will ebb, but a recession will be averted. Inflationary forces will cool. Rates will stay tame. The Fed will begin cutting rates by midyear.
Corporate-earnings growth will recede from its torrid double-digit pace into the mid-single digits. But investors will pay up in terms of slightly higher price-earnings multiples on stocks as they cheer the Fed and gain confidence that economic growth will persist. Liquidity is abundant, companies are flush with cash and buyout activity is accelerating.
Got that?
Of course, arguments are what make markets -- or at least what make them interesting. Therefore, we offer the following look at the key themes separating this year's bulls from bears, or at least the snorting bulls from their timid cousins.
Party Like 1995?
By far, the most beloved bullish analogy for the coming year is the mid-'90s pause in the economic expansion that launched the great bull market of the late 1990s.
The circumstantial similarities are obvious: Growth was slowing, and the Fed was lifting rates to forestall inflation. Stocks endured a churning, range-bound period, and the Fed then reversed and eased credit as growth troughed. The stock market marched higher through the year, ending '95 with a gain of 30%,
It would be sweet if history repeated, or at least rhymed. Cash-laden companies today are spending and global economies growing, offsetting the drag of a recession in construction and a slowdown in manufacturing. In other words, the deck is stacked for a hoped-for soft landing.
Yet it's hard to argue the current period has seen the kind of financial pain that preceded the late-'90s gain. In 1994, the bond market crashed as the Fed's tightening stunned the investment community. Although the indexes were flat and never quite fell 10% from peak to trough, more than 40% of New York Stock Exchange-listed stocks fell at least 30%. That's hardly the case today. Too, bond yields plunged in '95, something no one is expecting now. Mexico's peso collapsed and Orange County, Calif., went bust.
The Fed's Intentions
Richard Bernstein, chief quantitative strategist at Merrill Lynch, notes that Wall Street sentiment was so sour through 1995 that strategists on average were recommending equity weightings of less than 50% as the market took off. Bernstein's 2007 targets won't be unveiled until Tuesday, but he continues to look for single-digit index returns.
It was the unwinding of anxiety in '95, and the ability of companies to generate earnings far exceeding expectations, that provided the lift for the equity market that year. Granted, none of the strategists are suggesting as much upside today, but the bullish thesis rests now, as then, on the notion that a refreshing, stock-friendly pause and an accommodating Fed are the probable outcomes.
In 1994 and '95, the Fed's first tightening and easing maneuvers blindsided investors. In recent years, a more transparent central bank has encouraged the Street to anticipate changes in policy. This probably has smoothed the market response, as the steady bond market suggests.
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<TD class=medcptnocrd>How'd They Do? On balance, Wall Street's strategists were insufficiently optimistic a year ago. Three nearly pegged the S&P's current level, one overshot it, and most were far too cautious -- or bearish.</TD></TR></TBODY></TABLE>
Binky Chadha, chief strategist at Deutsche Bank, is looking for the same sort of "soft landing" that distinguished the 1990s, and places a 75% probability on such an outcome. He thinks the current quarter will see only 1% growth in the nation's gross domestic product and prove the low point for growth in the cycle. He expects the Fed to cut short-term rates by a quarter of a percentage point early in 2006.
Yet because alternative scenarios -- a hard landing, or reaccelerating growth with no Fed move -- would be bad for stocks, he recommends investors buy insurance against declining prices via options, which today are cheap.
The Institute for Supply Management manufacturing index last month fell below 50, implying contraction in activity. Citigroup's Tobias Levkovich notes that each time in recent history the ISM breached 50 on the downside, the Fed eased within six months.
The most aggressive call for sharply lower short-term rates is for policy makers to lop 1.25 percentage points off today's 5.25% federal-funds rate in 2007. Ryan of UBS and Goldman's Cohen share this view. Ryan thinks GDP growth of only 2%, and lower headline inflation, will clear the way for such a move and lead to a dramatic re-steepening of the yield curve.
Tom McManus of Bank of America suspects the market is "overly confident" about the prospect of an imminent rate cut. "We don't deny that the Fed might cut rates in '07, but it won't likely be as fast as the markets would like it," he says.
At the moment, the bond market is betting heavily that the Fed is itching to lower rates, presumably to head off a housing-induced slowdown. Yet this presumes that Chairman Bernanke's recent emphasis on the continuing inflation threat is mere lip-flapping rather than genuine vigilance.
Abhijit Chakrabortti of JPMorgan was last year's most vocal bear, and he's passing for same this year, although with a prediction that the market will gain just 2% in 2007. He believes steady growth and inflation readings above the Fed's comfort zone will leave Bernanke & Co. on hold or prompt more rate increases. If the Fed defies expectations and either keeps rates unchanged or lifts them, "it will prove to be a significant and speedy downside catalyst for the market," he says.
McVey at Morgan Stanley has a different reason for thinking the Fed will hold off trimming interest rates for as long as possible. "The last thing [Bernanke] wants to do is create more irrational exuberance in the private-equity market," he says. "Liquidity is still plentiful."<IMG class=imgnonbdy height=478 alt=[BA-TIMELINE.jpg] hspace=0 src="http://online.barrons.com/public/resources/images/OA-AI093_BATIME_20061208192315.jpg" width=730 border=0>

henry · 发表于 2006-12-11 10:42:08

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class=b13>Copper or Chewing Gum?
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class=verdana>There are plenty of paths available to arrive at similar market calls. The disagreement about whether deeply cyclical or more defensive sectors will lead the market in 2007 makes this clear.
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class=verdana>Cyclical stocks -- like copper producers -- have outrun more defensive sectors -- the chewing-gum crowd -- in the recent rally. While the relatively small (and still unloved) telecommunications sector is poised to become the best-performing group of 2006, energy, consumer-discretionary and materials stocks are also among the leaders.
Some on the Street have bought into the idea that emerging-market demand for resources will trump diminished growth in the U.S. and keep commodities prices -- and shares -- firm, or rising. Even so, says Morgan Stanley's McVey, "We get a lot of pushback [from clients] on our bullish energy call. We think oil will be flat to down over the year, but with a spike higher at some point. Energy gets multiple expansion. You've never seen a group have great earnings growth [energy's had it for three straight years] and then just roll over."
Merrill's Bernstein sees things differently, however. "A lot of people relate this period to the mid-'80s and mid-'90s, when we got P/E [price/earnings] expansion" he says. "But people are not positioned that way. Energy and materials stocks get P/E expansion only when the 'E' goes away. In every period of P/E expansion in the last 20 years, stable growth stocks have led."
McVey also thinks the broad market could trade at a higher multiple in a year because of the sources of growth. This year, 79% of earnings growth is coming from relatively low-multiple sectors: energy, financials, telecom, utilities and industrials. Next year, forecasts imply that 67% of growth will be generated by health care, technology and staples, groups that tend to trade at a premium to the market.
Even strategists who are confident the Fed will soon cut rates differ on the question of offense versus defense when picking sectors. Ryan, who feels that economically cyclical industries will be more vulnerable in a slowdown, prefers traditional havens such as health care, consumer staples and even financials.
Levkovich counsels a mix of themes, warning that big industrial stocks are not properly pricing in a potential downshifting of manufacturing activity, as highlighted by tempered outlooks recently from <A class=verdana onmouseover="window.status=(' Quotes & Research for CAT');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=CAT">Caterpillar </A>(ticker: CAT), <A class=verdana onmouseover="window.status=(' Quotes & Research for DE');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=de">Deere</A> (DE) and others. He also finds commodities unattractive as domestic production and housing slow, and questions why "investors continue to believe in the mysterious power of commodities." Yet he spies opportunity in semiconductors and media while shunning utilities and household-products names.<IMG class=imgrgtbdy height=1690 alt=[chart] hspace=0 src="http://online.barrons.com/public/resources/images/BA-AH203A_out_20061208175626.gif" width=432 align=right border=0>
Francois Trahan at Bear Stearns has a somewhat nuanced outlook on these matters. He sees the market under pressure in the early part of 2007, until the Fed satisfies investors' wish for a rate cut and leading economic indicators begin to foretell a reacceleration. At that point, he advises grabbing hold of tech and consumer-discretionary shares, typical early-cycle, bull-market leaders.
Moving beyond sector calls, McVey notes that historical correlations among sectors in various macroeconomic environments "have broken down." Consequently, he's hunting for companies with rising returns on equity, partly driven by greater balance-sheet leverage. With profit margins peaking, here's where outperformers will separate from the pack. Examples include <A class=verdana onmouseover="window.status=(' Quotes & Research for GD');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=GD">General Dynamics </A>(GD), <A class=verdana onmouseover="window.status=(' Quotes & Research for MER');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=mer">Merrill Lynch</A> (MER), <A class=verdana onmouseover="window.status=(' Quotes & Research for DF');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=df">Dean Foods</A> (DF) and <A class=verdana onmouseover="window.status=(' Quotes & Research for WFT');return true" onmouseout="window.status=('');return true" href="http://online.barrons.com/quotes/main.html?type=djn&symbol=WFT">Weatherford International</A> (WFT), an oil-services concern.
Mark this the third -- or is it the fourth? -- straight year the consensus believes large stocks ought to reclaim the lead over small ones. Although there were hints that the market's largest issues were resurgent this past summer, the small-cap Russell 2000 again is besting the big-cap indexes -- however by a narrower margin.
Large-cap valuations, on average, are lower than those of small stocks, but not to the degree that large-cap values exceeded small-caps at the peak of their outperformance cycle in 2000. If the universally expected slowdown materializes, history suggests sturdier, more multinational, less-leveraged companies would lead. It's also true that very large stocks are "underowned" by active fund managers such as hedge funds. The weakening dollar also tends to work in the big guys' favor.
The logic of a role reversal is sound, but, then again, it has been so in each of the past three years. The ascendance of big-caps might have to wait for a decline in financial-market liquidity and a pullback in the debt markets that so many small firms rely on.
McVey reports that, in the past, the time to "pile into the mega-cap trade" was after the S&P 500 already had outperformed the Russell 2000 by 20% in a given period. In other words, there usually is time to catch the wave.
When the bulls discuss market psychology, they contend that investors are unduly skeptical of stocks. Citigroup's Levkovich likes to point to his firm's sometimes maligned Panic/Euphoria index (which appears in Barron's in <A class=verdana href="http://online.barrons.com/article/SB116562568400045188.html?mod=article-outset-box">The Trader</A> and has been in "panic" territory most of the year) to support such a point.
A Lust for Emerging Markets
Others note that American investors don't seem to like American stocks. As Jason Trennert of Strategas Research Partners says, retail investors "are still net sellers of domestic equity mutual funds. We view this as a major positive for the sustainability of the rally."
And at midyear, it's now clear, investors were too negative on U.S. stocks, and hedge funds too short, opening the way for a rally. But small investors have been avidly throwing money at international funds, especially those in emerging markets that have done well in recent years. They are also finding other outlets for their speculative urges, whether in condos or foreign-bond funds.
It's possible this implies the U.S. stock market is, as McVey titled his 2007 outlook report, "The Best House in a Bad Neighborhood," meaning the most attractive choice in a world of unattractive risk/return trades.
McManus, who makes a regular study of fund flows as a sentiment gauge, says the outflows from domestic stock funds bespeak "boredom, not negativity." Redemptions, he notes, haven't risen, but gross inflows have fallen.
"When you consider the individual money flowing into international stocks, exchange-traded funds and hedge funds; the popularity of [CNBC market commentator] Jim Cramer; and Ameritrade and other retail outlets' doing well," the retail investor is more active, he says.
Perhaps a better clue to current psychology lies in the global appetite for leverage, the collapse of risk premiums on lower-quality assets, the tight correlations among global asset markets and the near-universal grasp for yield. In short, these are "stability" trades.
Market volatility has been running near historic lows, emboldening large investors to assume that stability and calm will persist, encouraging more risk-taking. Goldman's Cohen and Deutsche Bank's Chadha are among those who expect volatility will pick up in the coming year.
If that happens (it was also a popular call last year), it could compromise some of these strategies, leaving unwitting victims in its wake.
"There's a lot of money chasing too few ideas and using leverage to juice returns," says Merrill's Bernstein. He points to the scant premium afforded triple-A corporate bonds over lesser-quality bonds and the fact that triple-A debt is near an all-time low as a proportion of total global debt.
Says McVey: "If the market sells off, it's not because valuation is excessive. I worry about a shock, given how tight market correlations are." He points to the S&P 500's 80% correlation lately with the Indian stock market. In other words, there's almost a single, global trade in place, and meager opportunity to diversify. This was also true in 1997, before the Russian/Asian financial crises.
McManus agrees that "valuation is OK, but not great," based on P/E multiples of future earnings. The market isn't "cheap enough to withstand anything but a minor disappointment," he adds.
Here, then, is the force majeure clause of the upbeat consensus view -- a list of culprits that could shock a placid market. They include a back-up in yields overseas, which would draw capital out of the U.S.; a run on the dollar; downside acceleration in housing that creates major credit problems; a surge in oil prices driven by escalating geopolitical tensions; Russia's conversion of petrodollars into euros; the failure of a huge leveraged buyout, and...well, you get the point.
SO WHERE DOES THAT LEAVE investors? The financial system is overdue for an "accident" of some sort, given that some dislocation has accompanied each of the past three Fed-tightening cycles. The ingredients of excess -- hedge funds going public, mammoth buyouts on the rise -- are there, but haven't coalesced.
Nor is the bull a kid anymore. Stocks are entering the fifth year of a bull market, one of the longest ever, and the second-longest free of at least a 10% drop.
But as Birinyi Associates notes, in the three prior bull markets since 1962 that lasted through a fifth year, the fifth year was a good one, with average gains of 22%. That, among other things, could mean Wall Street's forecasters get it right again this year. Here's hoping so -- and happy new year.

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Barrons: 2007年股市展望

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