2009 Predictions

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Many readers have asked as to what might be in store for the markets in 2009. Since I follow trends and don’t make predictions, let’s look at how others view the markets over the next 12 months. The WSJ featured a story titled “Looking Ahead to 2009:”

Heading into 2009, expectations for the market run the gamut, and after a year like this, it isn’t surprising to see that forecasters are all over the map with their expectations for the coming year.

A quick MarketBeat canvassing of a handful of market strategists shows investors are anticipating anywhere from a stellar, 45% turnaround in the stock market, or another dreary year of grinding losses that ends with the S&P; around 600 to 700.

One commonality among those polled: A lack of conviction in forecasts for the coming year, or as Robert Pavlik of Oak Tree Asset Management put it after predicting the S&P; would hit 1030 by year-end 2009, “you’ll be better off asking me on 12/31/09 at 3:59 pm.”

Overall, strategists find themselves weighing the positive impact of the Federal Reserve’s considerable efforts to pump money back into the economy, along with an expectation of a massive stimulus package from the government that focuses on tax cuts and infrastructure improvement. A rebalancing of positions away from bonds and into stocks as corporate markets begin to improve may also enhance the value of equities.

But several commentators said 2009 presents more than the usual vagaries when determining the direction of the economy and corporate earnings. Charles Rotblut, market strategist at Zacks Investment Research, notes that the consensus S&P; earnings estimate for 2009 stands at $64.69, down 6% from 2008, but he adds that “given the trend in estimate revisions and the lack of visibility, I have no little confidence that this number will be accurate.”

One emerging consensus — which, of course, makes it a dangerous one — is for a first-half rally, built on the back of optimism as the new administration takes office, an expectation that the usual year-end avoidance of risk will reverse, and expectations for economic recovery due to a spate of mortgage refinancings.

The second half, however, is more problematic, and this is where opinions diverge. James Paulsen of Wells Capital Management, the most optimistic in MarketBeat’s poll, expects about a 45% gain in 2009, with the first 20 percentage points coming rather easily, and the rest more slowly.

However, one of the pessimists, author Michael Panzner, expects the S&P; to rise by 25% to 30% in the first half, but sees everything falling apart in the second half due to increasing protectionism, declining profits, and a loss of confidence in U.S. assets by foreigners.

There you have it. The forecasts for the S&P; 500 a year from now range from 600 to 1,250. In other words, these futile attempts at predicting the future are totally useless for an investor. As always, there are too many variables when looking at the fundamentals for anyone to use as a basis for making an intelligent decision. For that reason, I will stick to my “no forecast” policy and will simply continue to watch the trends for a directional signal.

If I had to adopt someone’s forecast from the above list, I would pick Peter Schiff’s, who accurately predicted the entire real estate/credit disaster way before the jokers on CNBC even had a clue that a downturn was on the horizon. Whether Peter will be accurate again remains to be seen.

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