Bullish About '04? Join the Complacent Crowd
THE THIRD TIME WAS A CHARM, even if the beginning was rather charmless. After two years of taking a bullish stance based on a hoped-for second-half resurgence in the economy and profits -- a rebound that didn't happen -- many market handicappers tripled down and made the very same call at the start of 2003. Despite a nasty spell that sank the indexes near six-year lows in March, the bet turned out to be right for the year, at least in the broadest terms.
A year ago, the consensus outlook was characterized thus in this column: Massive monetary and fiscal stimulus would begin to act as economic adrenaline, fending off a recession relapse, "reflating" the financial system, driving corporate profits higher and pulling stock prices with them.
That's the way the story played out, helped in the final pre-war descent by overconfident short-sellers, who by March were confusing genius with a bear market. Most forecasts cited here stipulated that the Standard & Poor's 500 stock index would finish the year somewhere between 1000 and 1100.
And that's exactly where the benchmark sits, after climbing seven points last week, to 1095, the upper end of the collective best guess. Both the S&P and the Dow Jones Industrials, at 10,324, will finish the year up about 24%. The Nasdaq Composite and Russell 2000 will almost double those gains.
In the particular plot twists, the market strayed from the script, as it does in almost any year. Very few market players recommended last year that investors buy shares of the lowest-quality, most heavily indebted, least viable companies, which have led the charge this year. Nor were there many calls for Nasdaq 2000, achieved just this month. The most popular sector was health care, a severe laggard in 2003.
Now, bullish investors and professional stock pushers are the ones feeling confident, if not demonstrably overconfident. The consensus cry right now is, "A little more in '04." (See cover story.)
A thorough, if not exhaustive, review of the formal year-end outlook dispatches produced by every Wall Street strategist and buy-side chief investment officer reveals a kind of harmonious, upbeat perspective. It's as if most of these folks have been reading off the back of the same cereal box.
Here are the beliefs espoused broadly as the year turns: The bear market ended in October 2002. Stocks will continue higher, though at a more moderate pace, driven mostly by underlying profit growth rather than rising risk appetites. Year-end targets for the S&P 500 are congregating in the 1125 to 1250 range, for a projected gain of 3% to 15%. Stock returns will again beat Treasury-bond returns.
The cyclical upturn in the economy is strong and probably sustainable, and will be bolstered by big tax refunds in the first quarter. Business spending will grab the baton flawlessly from consumer spending, which will slow. Companies are flush with cash and have great flexibility to invest or buy back stock. Investors will continue warming to stocks, as idle money is channeled into equities.
The mainstream case goes on to predict that Treasury yields are headed higher -- but that's okay for stocks because it means the economic improvement is real. The dollar will continue trending lower -- but that's no problem for stocks because it helps multinational earnings and will cut into the trade deficit. Profit and gross domestic product growth will decelerate -- but stocks can still log gains in a moderating growth climate.
A final aspect of the crowd's call is that the so-called quality trade will soon happen, or is perhaps already under way, depending who's holding the megaphone. This is a bet that market leadership will rotate from aggressively cyclical, high-multiple sectors like semiconductors and machinery makers, and into more stable groups like food and drug stocks. A corollary expectation is that small-cap shares will finally cede their frontrunner status to bulkier stocks of the globe-bestriding kind.
And, once again, health-care stocks are a fallback favorite. A survey released last week by Broadgate Consultants showed that 70% of brokerage analysts and investment managers polled were positive on health-care shares, versus 12% who were negative. (Note that such a crowded bullpen might not be bad for big pharmaceutical stocks, on which only 8% were upbeat.)
So, anyone who was nodding while reading the market outlook just laid out -- a logical take, a defensible case, but a consensus one -- should probably take care to recognize that he or she has a lot of company. And any portfolio positioned for such a scenario represents an implicit bet that the consensus will be broadly correct for a second straight year, which would defy long-term market tendencies.
With that said, it makes sense to offer a word on the whole troubled exercise of trying to identify, and then outsmart, the consensus. Some of the more astute commentators on the Street have remarked that most every pro insists he or she is "non-consensus." That's as tellingly absurd as the polls showing that 70% of all adults claim to be above-average drivers.
Morgan Stanley strategist Steve Galbraith, who has called the market's behavior impressively the past couple of years, recently conceded humbly that he was more or less in the middle of the bell curve on market opinion, a braver statement than the self-proclaimed maverick who forsakes honesty for boldness.
Still, it can't hurt to make an educated guess at the majority's mindset while trying to conjure an edge in the New Year. While detailed prediction is mostly folly, probabilities are the first draft of reality.
IT'S HARD TO SEE WHAT might prevent the market from retaining its upside bias at the start of the year. Economic numbers have improved and investors are happy to extrapolate them into a continuing upward arc. Market technicians report that the index charts lack serious vulnerability.
And it's probable that fresh cash will arrive in January, as retail investors who may have remained under-committed to stocks start believing their own bullish brokers. The recent decline in money-supply figures (which include retail money-market funds) and the rise in stock-fund inflows suggest this process may be underway.
It is expected to benefit the leading names -- and give the fast money a better exit point. If strong enough, this kind of dynamic could drive an upward spiral that extends the "echo bubble" outperformance of the sketchiest stocks, at least for a while. Meanwhile, some bearish hedge-fund managers, though not as many, continue to try to pick a market top each time the S&P climbs a few percentage points.
Slow but Sure: In a holiday-shortened week marked by low volume, the Dow edged up seven points, to 1095, despite the mad-cow news that hurt some food and restaurant stocks.
The "upside risk" to the consensus, then, is that the self-feeding belief in a new bull market takes hold and powers stocks appreciably higher, perhaps far beyond fundamental underpinnings. Some of the speculative momentum tactics that again are evident in the wilder fringes of the small-cap market are reminiscent of the silly years, for sure. But things can go on that way for quite a while before reaching the point of maximum, untenable silliness.
THERE ARE CRUCIAL DIFFERENCES between the current moment and 12 months ago. First, fear was palpable on Wall Street then, and the widespread view was that stocks would return single-digit annual gains for years. The market math continues to suggest single digits will be the norm over several years, but confidence has replaced fear, thanks to higher prices. That's right: Investors like stocks more once they've gotten more expensive.
Another distinction is that last year (and in late 2000 and 2001), the first half of the coming year was widely expected to be a nerve-wracking, slow-growth uphill climb, followed by a second-half snapback.
Now the market faces the reverse scenario -- strong economic momentum as the year begins, with easy year-earlier earnings comparisons and ebullient consumer and investor sentiment. But at mid-year, the comparisons get tougher, last year's tax cuts will be "lapped," and many believe the Fed will be in rate-boosting mode.
The front-loaded slate of positive forecasts for the market and the economy represents one risk to the upbeat full-year consensus, given the forward-looking nature of the stock market. If stocks attempt to discount the future at a six-month horizon, evidence of a much tougher "back nine" could pinch the indexes before long.
Which brings around a larger question of how much this year's impressive, powerful rally has "borrowed" from gains that might otherwise have come in 2004, or even beyond. At the moment, some strategists are willing to concede that any upside next year may well come at the expense of a tougher 2005. But not many believe that the main course -- and even the dessert -- might have been served and eaten by the first quarter, even if the economy remains intact.
Smith Barney's Tobias Levkovich is taking a position that sounds a bit like that view. He also stands apart from most of his peers in forecasting that the S&P will finish 2004 modestly below current levels, at 1025, after first continuing higher in the year's opening months.
The culprit, he figures, could be rising market interest rates, which could lead to a scenario like that of 1994, when stocks pulled back as price-earnings multiples contracted amid higher rates. It's worth noting, as Levkovich does, that 1994 was a frustrating year for equity investors even though GDP grew 4.2% and corporate earnings surged 20%.
(Mind you, low rates and low inflation don't make expensive stocks an any better bargain, but the market over the years has shown a willingness to pay higher multiples under those conditions.)
Sifting further through the What Could Go Wrong fine print, most risks to the cheery conventional wisdom are factors believed to be assets that could turn into market liabilities.
The interest-rate landscape comes under this heading. As mentioned, there's broad agreement that rates will trend higher, yet most handicappers don't see this doing much damage to stocks.
It's a difficult call -- almost as difficult as figuring out why rates remain even as low as they are, with the 10-year Treasury under 4.20%, given that virtually no one on these shores claims to be bullish on government bonds, the dollar's sliding, and the deficit's soaring. No firm answers here, but what's clear is that the contrarian bond trade is to own longer-term Treasury paper.
Tom McManus, strategist at Banc of America Securities, discusses varied opinions of how stocks might absorb a rise in rates, describing two views on the issue.
"One (the threshold model) holds that rates are so low that a minor increase from these levels will be easily tolerated," writes McManus. "The other (the momentum model) holds that the market will respond meaningfully to even the smallest perceived change in Fed policy."
He leans toward the latter view, which would mean that if expectations of higher rates are right, they would at least serve as a drag on stocks.
Another perceived "asset," the weaker U.S. dollar, could also end up turning into Mr. Hyde. Sure, it's a boon to U.S. multinationals' top and bottom lines. But plenty of cautious voices wonder when, if ever, the lower dollar might impede the country's ability to import capital to fund its current-account deficit.
A less-discussed hazard is the weak dollar's negative effect on the European and Japanese economies, which would compromise the "synchronous global recovery" that many are forecasting. Should the dollar's slide accelerate, expect to hear more chatter about 1987 echoes -- no matter how valid or off-base they may be.
And if the dollar should rebound, will the strategists then flip to say that a stronger dollar is now good for stocks, the way it was through most of the 'Nineties? Count on it.
The calendar is also viewed as a bonus, as plenty of bulls recite the historical strength of the market during presidential election years (second only to the third year of an administration, such as 2003). That's an accurate observation. But the chance that the market may get spooked by some wrinkle in the race can hardly be dismissed.
On the popular "quality trade" toward more stable sectors: If it happens, it could be in the context of a tougher market. The past year's leading sectors -- technology, consumer discretionary, financials and industrials -- comprise 60% of the S&P. If they give ground, smaller groups will have to lead -- ones without the heft to drive broad gains.
Some "quality" groups, notably energy, seem to have good fundamental stories, reasonable valuations and are "under-owned." But at 6% of the market, energy stocks can't produce much market upside.
As for the assertion that companies are cash-rich and financially strong, it's hard to argue the point. Nonfinancial S&P 500 companies have brought their ratio of cash holdings to total debt close to 35%, versus 20% at the top of the bubble in 2000 and near 15% in 1991, according to Morgan Stanley.
That cash bulge has built largely thanks to lower capital spending and a conservative posture among chief executives. But now business confidence is building. And current profit forecasts for tech companies, machinery makers and investment banks incorporate a substantial uptick in capital spending and corporate acquisitions.
Not to say that a value-destroying build-and-buy frenzy will arise, bubble style. It would be nice to think companies will redirect cash to shareholders as dividends and stock buybacks. But rising CEO confidence combined with lots of spare cash has often ushered in empire-building moves, some positive, some lame-brained. If nothing else, this activity could increase company-specific risk, again making the market one of winners and losers, rather than this year's slate of winners and bigger winners.
Another dark horse on the market's tote board is the inflation outlook. The consensus sees it as benign, quiescent -- pick your soothing adjective. Some economists are confident of the low-inflation call simply because of the way inflation is calculated.
Yet an uptick even in inflation expectations, realized or not, would pinch P/E multiples, if history is a guide. Recently the inflation expectations embedded in the inflation-protected Treasury bond markets have been rising. More inflation would be a boost for corporate earnings, although it's not likely to be received happily by investors.
THE REASON ALL THE downside risks seem to involve potential damage to stock multiples is simply that valuations, while not stratospheric, remain well above historical levels and are even further above levels that have prevailed at the start of enduring bull markets. In 2003, analysts basically nailed S&P 500 earnings forecasts after three years of failing miserably to foresee nasty profit trends. Operating profits for the S&P should come in around $54 for the year. That excludes all kinds of "extraordinary" items, like restructuring charges. Still, operating earnings and reported results were not very far apart in '03 for the first time in years.
Operating profits are projected to rise about 12% in 2004, to $61.50. Assuming the typical degree of analyst overestimation, the market sits at more than 18 times forecast operating earnings, versus an average P/E of around 15 times previous earnings. That's not crazy if all goes well, but doesn't leave room for much disappointment.
看涨2004年？别太自负啊...
这是一个已被重复两年但却从未成为现实的预言，但到了第三年，情况却忽然出现了转机。
2001年和2002年，市场人士都曾对下半年能够出现经济复苏和公司利润回升寄予厚望，并基于此对股市作出看涨预期，然而上述愿望并未变成现实。2003年伊始，这些市场人士再一次作出了同样的预期。虽然有一轮不利行情使主要指数于3月份跌至将近6年来低点，但事实证明，至少在广义上，上述看涨预期对整个年度而言完全准确。
一年以前，本栏目曾经这样描述对经济前景的普遍预期：政府将采取大规模的货币和财政刺激举措，拉动经济增长，防止经济衰退的卷土重来，促进金融系统通货再膨胀，并在刺激公司利润增长的同时使得其股票价格获得提振。 故事的确这样层层展开，而过于自信的卖空人士则促成了伊拉克战事之前的最终一轮下跌行情。在3月底前，他们一直是把天才和看空人士混为一谈。
本栏目中引述的绝大多数预期人士表示，标准普尔500指数今年年底将达到1000点至1100点之间。
而该基准指数恰好处在这一水平。上周标准普尔500指数上涨7个点后，达到1095点，接近预期区间的高端。标准普尔500指数和目前达到10,324点的道琼斯指数年底之前都将累计上涨大约24%左右。而那斯达克和罗素2000指数的涨幅还要多出一倍。
但在具体的行情变化中，市场偏离了最初的轨迹，正如往年一样。
去年，鲜有市场人士建议投资者买入那些质量最差、举债最多，且最缺乏活力的公司股票，而今年引领股市上涨的正是这些公司。号召投资那斯达克2000指数的人也是寥寥无几，而本月这一指数恰恰达到预期水平。
目前，感到自信的是那些多头人士和专业择股的市场人士。当前的呼声则是，2004年再涨一点。
阅遍华尔街策略师和看多投资经理就年底预期发表的正式报告，可以发现某种和谐一致的乐观看法。似乎他们当中绝大多数都得到了某种秘密的讯息。
随著年底临近，人们普遍认为，熊市已在2002年10月结束了。股市将继续攀升，而推动股市上涨的主要动力是基本的利润增长率，而不是对风险的承受能力。人们普遍认为，标准普尔500指数到2004年底时将达到1125-1250点的目标区间，预期涨幅为3%-15%。股市回报率将再次超出美国国债回报率。
周期性的经济增长是强劲的，而且很可能得以持续，此外，将在第一季度产生的大笔退税款项也将对经济增长助一臂之力。不出意外的话，商业支出将取代即将放缓的消费支出，成为推动股市的主要力量。企业不但拥有充足现金，而且有很大的灵活性，能够在投资股市和回购股票之间游刃有余。随著闲散资金被投入股市，投资者对股市的热情将有增无减。 主流观点依然是美国国债收益率将会不断上扬，而这对股市则是有利的，因为这意味著经济复苏是实实在在的。美元将会继续走低，但这对股市而言不成问题，因为它能够帮助跨国公司提高收益，且有利于减少贸易赤字。公司利润和国内生产总值(GDP)的增长将会不断减速。不过，在经济增长变得温和的情况下，投资股市依然可以获得大量利润。
最后一点，绝大多数市场人士预计，所谓的避险交易将会很快出现，或者说已经出现。这就意味著，市场的主导力量将不再是半导体和机械制造类股，而是更加稳定的食品和制药类股。一个必然的结果是，小型股最终将退出领头羊的地位，而让位于更大型的股票。
而保健类股则将成为退守阵地者最青睐的一类股票。Broadgate Consultants上周公布的一份报告表明，接受调查的70%的证券分析师和投资经理看好制药类股，只有12%看跌该类股票。
不过，推测一下绝大多数人的想法，设法在新的一年当中抢占先机，这种做法终归没有任何坏处。
目前，我们很难预见究竟有哪些因素会阻碍市场的升势。各项经济指标的情况已见好转，投资者很乐于推断出一个不断持续的向上趋势。市场技术人士指出，各项指数的技术图形都不存在严重的弱点。 新的资金很可能于1月份到位，因为那些没有对股市充分投入资金的散户投资者已经开始信任看多的券商。货币供应量近来的下降以及股市资金的流入表明，新的资金流入已经开始。
预计这将使一些行业领先公司从中得益，并给游资以更好的归宿。如果资金规模足够，这种势头有可能促使股市形成螺旋上升态势。而一些看空对冲基金经理则要在每次标准普尔攀升几个百分点的时候，都妄想著看到股市顶部。
目前的情况与12个月前有著根本的不同。其一，华尔街当时的恐惧情绪是显而易见的。那时人们普遍预计，在未来数年内股市每年将仅有一位数的涨幅。现在，技术数据也表明，未来几年正常而言股市涨幅也将是一位数，但是，由于目前股价较高，市场上信心终于取代了恐惧。的确，股价越涨，越会受到投资者的青睐。
其二，去年（及2000年和2001年末时），人们普遍认为来年上半年股市将处于令人头疼的缓慢爬坡过程，下半年将开始回落。
如今股市却面临另一番景象：新年伊始经济增长态势强劲，上年同期收益对照基数偏低，消费者和投资者士气高涨。但到年中，收益差距将收窄，去年减税政策产生的效果将不复存在，同时，许多人相信Fed即将开始加息。
鉴于股市的前瞻性，对股市和经济提前作出乐观预期将意味著对全年的乐观预期存在风险。如果无视6个月后的股市前景，那么不久以后，"后9洞"更严峻的形势将导致股指下跌。
这就引入了一个更大的问题：今年股市强劲有力令人感慨的涨势有多少是提前预支了2004年的涨势呢？目前有些策略师愿意相信，股市明年的任何涨幅都将是以牺牲2005年的市场为代价的。但是没有多少人相信，即使经济不受影响，但经济大餐的主菜甚至包括甜品可能在刚开始的一段时间就已经上桌并已经被吃掉了。
美邦分析师Tobias Levkovich的观点就与此类似。与其他大多数人不同的是，他预计2004年最初几个月标准普尔指数将持续上涨，但年底时将温和低于目前水平，至1025点。
他指出，导致标准普尔指数年底下挫的罪魁祸首将是市场利率上涨的因素，1994年的一幕将重演。1994年，因利率上升，股票本益比随之下降，股市因此下滑。值得注意的是，1994年是股市投资者的兵败之年，尽管那一年美国GDP增长4.2%，公司收益飙升了20%。
传统智慧遇到的大多数风险就是，股市中某些本来被认为是有用之物的因素最终可能会变成负担。
比如利率。正如我们已经提到的那样，人们普遍认为美国将会加息，不过大多数人却认为，这一因素不会给股市带来太大损害。
预测利率的影响确实很难－鉴于基本上无人看好国债、美元走软和赤字攀升等问题，同时，10年期国债利率低于4.20%，预测利率的影响几乎像猜测利率为何如此之低一样难。这里没有确切的答案，但是可以肯定的是，投资者对国债的反向交易就是持有长期国债。
美银证券(Banc of America Securities LLP.)策略师Tom McManus讨论了对股市如何应对加息因素的不同意见。他提出了两种观点。
其一为关口模式。该模式认为，目前的利率如此之低，小幅上涨会很容易被市场接受。其二为动能模式。该模式认为，市场对即使最微小的Fed政策变化也将做出较大反应。
McManus本人倾向于后一种观点，也就是如果加息的预期是正确的，那么加息至少会拖股市的后腿。
另一个可能被视为有用因素的是美元贬值。的确，美元贬值将惠及美国跨国公司的收入和利润。但也有许多谨慎的人想知道，美元低到什么程度才会影响美国引进资本来填补庞大的经常项目赤字的能力。
还有一个较少被谈及的风险因素是美元疲软对欧洲和日本经济造成的负面影响，这可能损害许多人对全球经济同步复苏的预期。
如果美元反弹，那么策略师会立即转而预计美元走强将对股票有利、就像上个世纪90年代大多数时候那样吗？很有可能。
时间也被视为一个加分因素，许多看好股市的人相信，历史上的总统大选之年股市通常会有出色的表现（仅次于一届政府执政的第三年，如2003年）。这是一个很精确的断言。但是，股市也可能受到选举过程中某些意外事件的惊吓，这个可能性也不容忽视。
至于对较稳定行业股票的避险交易，如果这种情况能够发生，那它必将是在较为严峻的市场环境中。去年，行情领先的行业占标准普尔指数的60%，如科技业、消费者品行业、金融业和工业等。如果它们失利，小型股将不得不取而代之，而小型股是无力推动大盘整体上扬的。
某些避险类股，其中以能源业为突出，似乎拥有良好的基本面背景，合理的价值，也并未被广泛持有。但是，仅占市场6%的能源类股是无法带动股市走高的。
有些人宣称，上市公司手中现金充足，财务稳健，但这一点是很难论证的。摩根士丹利(Morgan Stanley, MWD)指出，标准普尔500指数非金融类公司的现金与总债务的比率已经接近35%，高于2000年经济泡沫鼎峰时期的20%和1991年时的近15%。
充足的现金得益于资本支出较低和首席执行长们的保守战略。但现在，企业的商业信心正在建立。市场目前对科技公司、机械制造商和投资银行的利润预期都包括资本支出和公司并购将大幅增加的预期。
股市赛马场上的另一匹黑马是通货膨胀前景。人们普遍预计，通胀前景将很温和而沉寂。一些经济学家如此预期只是由于通货膨胀的计算方式问题。
不过，从历史经验看，即使是预期中的通货膨胀率上升－无论实现与否－都将导致本益比下降。最近，一直得益于低通胀的国债市场对通货膨胀的预期有所上调。通货膨胀率上升将推高公司收益，尽管这可能是投资者不乐于见到的。
为什么股市所有的下行风险中似乎都涉及到对股票本益比的潜在损害？道理很简单，目前，股票价值仍远高于历史水平，甚至高于长期牛市刚开始时的水平。2003年，在3年未能预测到利润下降的趋势之后，分析师基本锁定了标准普尔500指数的收益预期。标准普尔指数成份股的运营利润平均每股应该在54美元左右，其中不包括各种特殊项目，如重组支出等。不过，2003年运营收利润与公布业绩相差不多，这是数年以来的首次。
预计2004年标准普尔指数成份股的运营收益将增长12%，至61.50美元。考虑到分析师作预期时高估的程度，预计平均本益比将在18倍以上，而此前一年是15倍左右。如果
一切顺利，这个预期应算合理，但也已接近上限了。
