Separated at Birth: 2003, 2004 -- and 2005?
SURE, DICK CLARK BOWED OUT of shivering before the cameras in Times Square on New Year's Eve, but in other ways 2004 wound down in much the way that 2003 did, at least from an investor's perspective.
In 2004, a fourth-quarter surge in the indexes ended things on a cheery note for the bulls, as the professional forecasters penciled in some additional moderate gains for the coming year. Economic growth is popularly viewed as having stamina and the market's short-term momentum appears strong. Ditto a year earlier.
The yield on the 10-year Treasury note finished 2004 at 4.26%, as nearly everyone was issuing catcalls that bonds were for suckers. And a year earlier, the 10-year settled at...4.26%, amid a crushing bearish consensus on Treasuries.
Twelve months ago, stocks in the Standard & Poor's 500 were valued at about 18 times then-consensus 2004 forecast earnings of $61.50 a share. In fact, profits for '04 are set to come in well above that, at around $66.70, according to current predictions. Retrospectively, that placed the year-ago multiple on actual 2004 profits around 16.5.
And, what do you know: If the analysts this year are right in their consensus for 2005 earnings of $73.74 (a significant "if"), the present forward multiple sits right about 16.5. That's on the expensive side of history, in a world where nearly all asset classes appear somewhat pricey. Anyone else hear that echo?
When Barron's went to press Thursday, with one day of stock trading left in 2004, the S&P 500 had reached 1213, up 9% on the year, or about 10.7% including dividends. The Dow Jones Industrials -- weighed down by negative trends in mega-cap stocks and industry troubles for its insurance and drug components -- was up 3.3% for the year at 10,800. The Nasdaq nearly matched the S&P, rising 8.7% to 2178.
The cosmetic similarities prompt the question of how the present moment differs from the dawn of 2004.
As for corporate fundamentals, earnings growth is expected to slow to around 10% in '05 from 19% in '04. But, importantly, the industry analysts' company-by-company forecasts for '05 growth, when aggregated, are several percentage points above those of the top-down strategists.
In past years, such a discrepancy has served as a mild warning that the analysts' eyes have gotten a bit too large. Throw in the idea (now, it seems, broadly acknowledged) that companies are projected somehow to improve on already-high profit margins, and there's at least a good chance that last year's upside profit surprises will be hard to repeat.
Then there's the passing of time itself. The market is one more year into what seems to be a cyclical bull market. Such bull moves have tended to last roughly 2? years. Depending on whether one counts the market bottom from October 2002 or March 2003, this bull is approaching the average life span. Note that, based on market indicators and surveys, very few investors have a new bear assault on their radar screens.
Yet, the most timely indicators of market strength -- firm buying interest, many more rising stocks than decliners, seasonal effects -- all give the benefit of the doubt to bullish traders in the immediate term. The only signal flashing yellow is lopsidedly bullish investor sentiment, a net negative but a poor timing tool. As in January 2004, tens of billions in new cash should enter stocks in the month, to replenish buying interest and cash out the fast money.
Groovin' Like the 1960s?
Let's get all the salient objections to historical market analogies out of the way. There's no reason that index charts should synch up from one period to another, and if they do there's no saying that the similarities contain any predictive power. And, of course, the human instinct to impose patterns on random data where none exist shouldn't be underestimated.
All that said, the comparison that Ned Davis Research has been highlighting recently between today's market and that of late 1960 might rise above the status of mere curiosity.
The comparison starts with the fact that in both 1960 and 2004, important lows for the S&P 500 were set on Oct. 25, and strong subsequent rallies ensued. Ned Davis properly cautions against looking for exact reruns. But it should go without saying that both years also featured closely contested presidential elections.
The two-month course of the current market with that of 1960 has been striking. Setting the 1960 S&P 500 to the current version suggests that by Dec. 30 the index should have reached 1216. In fact, on the 30th the index closed at 1213.
It so happens that January 1961 was an extremely strong month, even for the traditionally bullish start-of-year period. The market vaulted to a 6.3% gain in January 1961, on the way to a fine year.
The Ned Davis folks have offered the historical comparison in the context of a tactically bullish stance by the firm, based on the strong index uptrend, solid technical readings and seasonal tendencies.
It could well be that the two-month spurt from late October has borrowed potential upside from 2005, but there's no saying the payback has to begin as soon as the New Year's confetti is swept up.
Terex's Turn of the Cycle
Riding the cyclicals is again the bulls' preferred travel mode, as a mid-year lull in the economy passed and the fervor for economically-geared companies returned.
The Morgan Stanley Cyclical index advanced better than 16% last year, as did the S&P industrial sector. The MS Cyclical index's gains, and more, have come since late October.
Thus have the bets been laid for the global economy to drive demand for heavy-industrial goods, and -- investors hope -- float cyclical stocks.
With a pure cyclical stock, the way to win is to guess right on the strength of the cycle. Terex, though, is a lesser-known machinery maker that features company-specific reasons to like it, in addition to its leverage to industrial demand.
Terex makes construction and mining equipment, including trucks, cranes, "cherry pickers" and road-paving vehicles. Though not big in equity terms, with a $2.3 billion market value, Terex is the third-largest construction-equipment maker after Caterpillar and Japan's Komatsu. Notably, in its individual product lines, Terex is generally larger than its main competitors.
An assemblage of mostly acquired businesses, Terex is now in the process of deleveraging its balance sheet, rationalizing its manufacturing processes, rebranding its products under the Terex name and raising profit margins. In short, the company is executing the kind of 1990s-style tune-up that much of industrial America underwent during the Clinton years.
The company has a stated goal of reaching $6 billion in revenue in 2006, up from under $4 billion in 2003 and an estimated $4.7 billion in 2004. The official company earnings-per-share target is $7, versus an expected $2.50 in 2004 and an analyst consensus projection of $3.50 in 2005. For 2006, no analyst has a published forecast higher than $5.
似曾相识的年初行情
身染中风的迪克?克拉克(Dick Clark)在2005年的新年之夜肯定是不能再在时代广场主持节目了，但从其他角度来讲，2004年年底时的行情和2003年如出一辙，至少投资者是这样看的。
主要指数在第四季度的大幅上扬使得2004年年底时的股市在喜庆的气氛中收场，而且，专业预测人士预计来年股市还有进一步的温和上涨空间。人们普遍认为经济增长仍然保持著活力，市场短线走势强劲。这幅景象彷佛就是2003年年底时的翻版。
2004年年终时，10年期美国国债收益率收于4.26%，几乎所有的投资者都认为只有傻瓜才会去买美国国债。2003年年终时，10年期美国国债收益率同样也是收于4.26%，当时市场上也是一边倒地不看好美国国债。
12个月前，基于2004年每股收益61.50美元的普遍预期，标准普尔500指数当时的预期本益比约为18倍。实际上，根据当前的预期，2004年标普成份股的每股收益势必会远远超过上述预期，应该在66.70美元左右。以此倒推，2003年年底时的预期本益比应该为16.5倍左右。
如果分析师对今年标普成份股每股收益的预期──73.74美元得到验证的话，那么2005年的预期本益比同样也是在16.5倍左右。和以往相比，这是一个较高的本益比，不过，各种金融资产似乎都定位偏高。
上周四，《巴伦周刊》送到出版社印刷时2004年就只剩下一个交易日了。截至当天，标准普尔500指数全年上涨了9%，至1213点，如果将派息包括在内，全年的涨幅则为10.7%。尽管受到超大型成份股以及保险和药业成份股走势低迷的拖累，但道琼斯工业股票平均价格指数全年仍然上涨了3.3%，收于10,800点，那斯达克综合指数全年上涨8.7%，收于2178点，涨幅堪和标准普尔500指数相媲美。
上述种种巧合使得人们不禁产生这样一个问题：2005年年初的走势与2004年年初时相比会怎样呢？
首先让我们从公司基本面谈起，预计2005年公司利润的增长率将从2004年的19%放缓至10%左右。但重要的是，业内分析师在对各公司进行逐一分析、然后进行总体统计得出的2005年盈利增长率数据比采取由上而下投资理念的策略师们得出的数据高出几个百分点。
从以往的经验来看，这种分歧往往意味著分析师的预期有些过于乐观了。分析师的预期意味著企业要在利润率本已高得惊人的基础上取得进一步的突破（这正是现在市场上的普遍观点），显然，这种情况实现起来的可能性比较渺茫，至少有充足的理由认为，去年盈利出人意料地大幅增长的情形在今年是很难重现了。
而且股市上涨的时机也已经过去了。本轮牛市行情业已进入了第二个年头。这种牛市行情往往持续近2年半的时间。不论是把2002年10月或是2003年3月视为底部，这轮牛市行情都已接近终结。需要指出的是，无论是从市场指标还是从调查来看，没有多少投资者对股市持悲观看法。
然而，稳固的买盘兴趣、上涨股数量超过下跌股、季节性因素等最能直观反映市场走势强弱的指标无一例外地从“疑罪从无“的角度为交易员在短线内看涨提供了理由。唯一值得警惕的信号是市场人气呈现一边倒的看涨，这无疑是个负面信号，但出现的时间却不合时宜。与2004年1月一样，今年1月也应有上百亿美元的新增资金进入股市，以巩固买盘兴趣并填补短线操作者留下的空白。
尽管依据历史经验对市场行情做出类推这种做法遭到许多人的反对，但我们也不要对它完全置之不理。没有任何理由说明一个时期的指数走势能够照搬到另一个时期，即使一个行情重复上演，也不能说明前一个行情就具有预测功能。但是不能低估人类具有把本来杂乱无章、毫无意义的数据生拉硬拽地联系到一起的本能。
有鉴于此，Ned Davis Research近期把市场目前的行情和1960年末期的行情做比较或许已超出了单单只是出于好奇这个层面。
这两年市场行情的相似之处在于标准普尔500指数都是在当年的10月25日创下重要低点，之后又都出现强劲上扬。Ned Davis不失明智地对认为1960年的行情将重复上演的观点持谨慎态度。但众所周知的是，1960年和2004年的总统大选两党候选人的支持率都是不相上下。
在2004年和1960年年底前的两个月里，市场都是出现了显著的上涨行情。以1960年标准普尔500指数的涨势推算，2004年12月30日时标准普尔500指数应该涨至1216点，实际上标准普尔500指数在2004年12月30日时收于1213点。
即便是考虑到新年伊始股市一般都是取得开门红的成绩，1961年1月的涨幅仍可谓是极为强劲。1961年1月标准普尔500指数的涨幅为6.3%，那一年全年的股市行情也不错。
Ned Davis的员工是基于股指的强劲上涨走势、良好的技术图形以及季节性因素，再结合该公司的看涨立场对1960年和2004年的市场行情做出比较的。
今年始于10月底的连续2个月的上涨行情很有可能是将2005年的上涨潜力提前发挥了，但这并不代表说2005年新年伊始股市一定就会回调。
