What the Pros Are Saying

Most of the experts we surveyed foresee the market going up a bit—but the climb will be tough

by Anne Tergesen

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Ralph J. Acampora Brian Maranan Pineda

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Robert Arnott Thomas Michael Alleman

Laszlo Birinyi Richard Freeda/Aurora

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When it comes to investing, no one is right all of the time—or even most of the time. It pays to listen to a diverse set of voices, and make your own judgments. To help you think about investing for 2008, BusinessWeek surveyed a half-dozen market strategists with a cumulative 175 years of experience.

RALPH J. ACAMPORA, DIRECTOR OF TECHNICAL STUDIES, NEW YORK INSTITUTE OF FINANCE

According to the technical indicators that Acampora spent four decades on Wall Street analyzing, the five-year-old bull market is tired. The Dow Jones industrial average (DJIA) has forged ahead, albeit fitfully. But relatively few stocks are hitting new highs, says the recently retired Acampora, who continues to teach technical analysis. Worse, the Dow Jones transportation average is struggling.

That's often a sign something is amiss with the economy, says Acampora, who was dubbed the "king of the bull market" by CNBC in 1995 for predicting the Dow would soar from 4000 to 7000 within three years—a call for which his then-employer, Prudential Securities (PRU), rewarded him with a 1962 Corvette with "Dow 7000" on the license plate.

With the Federal Reserve cutting interest rates, Acampora thinks a traditional yearend rally will spill over into the New Year. But he expects stocks to run out of steam soon after, precipitating a 10% to 20% sell-off that will make this summer's 8% drop seem like a minor blip. In the second half of the year, Acampora looks for the bull to regain its strength, as economic growth, fueled in part by election year pump-priming, accelerates. Acampora's advice to investors? Stick with the large-cap growth stocks that are currently in favor.

STUART T. FREEMAN, CHIEF EQUITY STRATEGIST, A.G. EDWARDS & SONS

The winner of BusinessWeek's annual stock market forecasting survey last year, Freeman likes the outlook for stocks in 2008, mainly because he doesn't see much else to get excited about. By Freeman's reckoning, stocks are cheap today compared with U.S. Treasury bonds.

If the companies that make up the Standard & Poor's 500-stock index earn the $93.76 per share he expects them to this year, the index's earnings yield—its earnings divided by its price—is now 6.39%. That compares favorably with the 10-year Treasury bond's yield of 4.24%. U.S. stocks also look attractive compared with real estate. And Freeman expects overseas stocks to struggle, as foreign economies lose steam.

Still, Freeman is advising his clients to exercise caution. He expects the economy to avoid going into recession in 2008, but just barely. With investors fearful of an economic downturn, he believes the Dow will drop some 10%, to 12,120, by midyear. To play it safe, Freeman recommends sticking with large-cap consumer products companies, such as PepsiCo (PEP) and Procter & Gamble (PG), whose bottom lines typically hold up in tough times. These companies "are still generating earnings growth with a high degree of predictability."

ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL

Best known for advising clients to sell just before the 1987 stock market crash, Garzarelli is a big bull today. Like many others, she expects economic growth to be sluggish in the first half of the year before the impact of the Fed's interest rate cuts starts to turn things around.

But while most are expecting modest stock market increases next year, Garzarelli is looking for something more: a 20% gain on the Dow and the S&P 500 stock index. Why? While most analysts are worried about negative earnings surprises, Garzarelli is betting that earnings will hold up: She says they will rise some 7%, as lower interest rates reduce the cost of borrowing for corporations and a weak dollar fuels strong export growth. Of the 14 indicators Garzarelli follows, which measure everything from investor sentiment to stock valuations, most are flashing favorable signals. "