04/20/19 THESE BULLS DON'T WANT TO SAY 'I TOLD YOU SO,' BUT...

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THESE BULLS DON'T WANT TO SAY 'I TOLD YOU SO,' BUT...
What the handful of forecasters who saw a 9000 Dow in '98 see now
In early December, when the Dow Jones industrial average hovered around 8000, the idea that it would breach the 9000 mark by April seemed as likely as Bill Clinton inviting Paula Jones over for dinner. Just look at the '98 forecasts of the investment strategists BUSINESS WEEK consulted then. The consensus of those 45 seers suggested that the market would make only modest gains: a Dow of 8311 at midyear and 8464 at yearend.
Now, just four months later, the Dow has closed once above 9000, and even after a pullback to 8892 by April 8, it still is up 12.43% year-to-date. Other indexes are doing even better. The Standard & Poor's 500-stock index gained 13.52%, and the NASDAQ Composite Index, which had been up over 18% at one point, is still up 15.07%.
Whether the Dow and other indexes can sustain their stunning gains remains to be seen, but one thing is certain: This stock market has come a lot further and a lot faster than almost anyone expected. Anyone, that is, except for a fearless few forecasters, such as Laszlo Birinyi of Birinyi Associates Inc. and Robert J. Froehlich of Scudder Kemper Investments Inc., who, in December, broke away from the crowd and said 1998 would be better for the stock market than most dared to imagine.
BREATHLESS. Birinyi was our most bullish forecaster, looking for 9500 on the Dow by midyear and 10,250 by yearend. Froehlich had slightly lower targets of 9300 and 10,000. Other prognosticators with high targets for the Dow were Eugene E. Peroni Jr. of Janney Montgomery Scott, Anthony F. Dwyer of Ladenburg Thalmann, Joseph Battipaglia of Gruntal, Barry Hyman of Ehrenkrantz King Nussbaum, and Rao Chalasani of EVEREN Securities.
The market has been so strong, even some of these bulls are a little breathless. ''I didn't expect the entire year occurring in the first quarter,'' says Hyman. For now, he is sticking to his original midyear forecast of 9300 and a 4% to 7% pullback in the second half. But he has been so impressed by the market's momentum that he fully expects the Dow to recover and close the year at 9450 rather than the 9150 he originally estimated. Says Hyman: ''The market has the ability to shrug off a lot of bad news.''
There's no better example of this than how investors have reacted to a sharp drop in analyst estimates for first-quarter earnings. All winter long, company analysts have been cutting estimates sharply--without much lasting impact on overall stock prices. That doesn't surprise EVEREN's Chalasani. ''Investors have been willing to look beyond 1998 earnings and trade on expected 1999 earnings,'' he says. ''That's the kind of behavior you see in a long bull market.''
In climbing so far, so fast this year, the market also seems to have downplayed the possibility of serious or lasting damage from Asian economic and financial turmoil. ''It looks like the impact will be in the short term, not for the longer term,'' says Dwyer, the market strategist for Ladenburg Thalmann & Co.
''Last year, everyone was assuming a worst-case scenario from Asia,'' says Birinyi, who studies the flow of funds into and out of stocks, not international trade. But Birinyi looked back to the stock market's reactions to the Mexican financial crises of 1994 and 1982 and determined that the fears were much overblown. ''There was so much pessimism,'' he notes. ''In the market, that's a big plus.''
Chalasani also believes that the Street misread the Asian crisis. ''The result has been lower inflation and greater liquidity [in the financial system], and that leads to higher stock prices,'' he says. Indeed, most foreign markets, including some in battered Asia, are well into the plus column so far this year.
The worries about Asia's impact on the U.S. might have been less if the stock market hadn't been so high for so long. After all, when the seers were peering into 1998, they were looking at a market that had enjoyed an unprecedented three years of 20% or greater gains. Gruntal & Co.'s Battipaglia says the market's recent results have been so much greater than the long-term average of 11% a year that ''it's like climbing Mount Everest.'' People keep expecting to come down the other side, he adds, but this mountain is higher than anyone thought. ''The stock market reflects the unprecedented success of the dominant economy in a global marketplace in a time of relative peace,'' says Battipaglia. ''So, financial values deserve to be at these levels and could go higher still.''
OPPORTUNITY. Not that the next 1000 points is going to be easy. Sure, climbing from Dow 9000 to 10,000 is only 11.1%. In contrast, it took a 25% gain in stock prices a few years ago to move the Dow from 4000 to 5000. And in the past few years, sharp ascents usually have been followed by months of ''sideways action'' in which the Dow bounces around within a range of a few hundred points.
But some of our forecasters think the sideways move may tilt downward. Ladenburg Thalmann's Dwyer says he is tempering his enthusiasm for now, because he expects a correction soon. Still, he counsels investors not to fear a correction but to look at it as an opportunity to buy at lower prices. Adds Peroni of Janney Montgomery Scott: ''All the fundamentals are very much in place.''
Certainly, the mergers-and-acquisitions boom is still gaining steam. Indeed, the megamerger of banking behemoth Citicorp and brokerage-and- insurance empire Travelers Group Inc., announced on Apr. 6, was the catalyst that finally pushed the Dow over 9000 (page 34). No doubt, the stunning deal will lead to others--and that will energize stock prices once again.
The river of cash heading into the stock market is deep and wide. With mutual funds, cash follows performance returns, and with most funds scoring double-digit yields so far this year, the money is expected to keep rolling in. And Birinyi, whose computer systems track every trade, says investors are making an impact on the market individually as well. There was ''tremendous retail investor interest'' in Citicorp's stock well before the Travelers deal, and it hasn't closed below 112 all year. Traditionally, individual investors have shied away from high-priced stocks.
Sky-high market valuations can lead to short-term market volatility, notes Scudder Kemper's Froehlich. But, he adds, while the market hasn't experienced these valuations before, neither has it seen 76 million people focusing on retirement investing, a boom in capitalism and consumerism around the world, along with a technological revolution. ''The old models that people used to forecast the market don't capture that,'' says Froehlich. ''If they did, a few forecasters would be wrong about the market, and every one else would have been right.''
By Jeffrey M. Laderman and Suzanne Woolley in New York

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