In fact, more than half of the 76 forecasters we polled a year ago came remarkably close: On average, their forecasts on the Dow, the S&P, and the NASDAQ were within 5 percentage points of the actual closes. In the end, Freeman's calculated optimism gave him the edge. "Our expectation was that we'd have a strong earnings year and the economy would move forward at a better-than-average pace," says the 46-year-old chief equity strategist of the St. Louis financial services firm. The biggest surprise? The continued strength of small-cap stocks.
Freeman, who earned both a bachelor's in finance and an MBA from Washington University in St. Louis, credits a favorite professor, John Bowyer, for teaching him to analyze the stock market. Since joining A.G. Edwards as a health-care analyst in 1983, Freeman has developed a set of models with 200 variables that go back 30 years, including the average duration of unemployment and a measure of after-tax corporate profits. With these, he can simulate the economy and determine which industries will do best under the various conditions he forecasts.
Freeman predicts a yearend Dow finish of 13,700, up 11% from its close on Dec. 8, and 10% and 8% hikes in the S&P and NASDAQ, respectively, over the course of 2007--more bullish than Mayer, who's executive vice-president and director of portfolio management at Boston's Pioneer. According to Freeman's crystal ball, economic growth will slow--and with it, earnings growth. But large-cap stocks will appreciate as they have for the past few months. "There are stocks hitting new highs," he says, "but they are much cheaper than they were when they were at old highs in 1999 and 2000 because earnings have grown so dramatically." By Bremen Leak