It may be hard to believe after this year's market turbulence, but despite the turmoil over falling home prices and a widespread credit crunch, stocks have done pretty well. And they may do so again in 2008, a number of professional market-watchers say. That doesn't mean watching what happens to their portfolios will be any more fun for investors than it was this year, though. The same anxieties about a global credit crisis, widespread housing foreclosures and a possible recession that produced this year's stomach-churning market volatility are still with us, and likely to cause more ups and downs.
"The key word for the year ahead is uncertainty," said Alan Newman, the Wantagh-based editor of Crosscurrents, an investment newsletter. "There's too much happening, and we don't know how it's going to turn out." As of the close of trading Friday, the Dow Jones industrial average had weathered 77 triple-digit moves up or down in 2007. That was the most in five years, and more than twice the index's average of 38 annual triple-digit moves between 2004 and 2006. Thrill rides for investors in 2007 included the first formal market correction in nearly five years, when the Dow fell 10 percent between early October and late November.
Nevertheless, barring a major downturn today, the Dow will emerge from 2007's House of Horrors with its fourth gain in the past five years. That gain, which totaled 7.24 percent as of Friday, might pale beside the Dow's scorching rise of more than 16 percent in 2006 -- but it beats the index's 0.6 percent drop in 2005 and its anemic 3.1 percent rise in 2004.
Other indexes also were on track to rise. The Standard & Poor's 500 index, an important indicator for the performance of many popular mutual funds, is set to log five straight years of gains based on Friday's close, as is the tech-heavy Nasdaq composite index. "From a market perspective, it is not an exaggeration to say that the U.S. equity market has done amazingly well . . . the vicious decline in the housing market, the spread of the credit market crisis, rising oil prices, weakening consumer confidence and intensifying recessionary fears," Robert Doll, chief investment officer for global equities at BlackRock, a Manhattan-based investment firm, said in a recent report.
One of the most bullish forecasters for 2008 is Ed Yardeni, a market strategist and economist who heads Yardeni Research in Great Neck. He sees recession fears subsiding by midyear and also believes the United States may achieve some major foreign-policy victories that will boost stocks. Yardeni predicts the S&P 500 and the Dow will each climb about 20 percent next year, to 1,776 and around 16,000, respectively. In a Newsday sample of strategists for eight major Wall Street securities firms, the average price target for the Standard & Poor's 500 by year-end 2008 was 1,653. That would be 11.8 percent higher than Friday's close for the S&P. And if the Dow rose by the same percentage, it would end 2008 at 14,943.
Even the most bearish strategist in the group, Thomas Lee of J.P. Morgan Securities Inc., recommends that investors keep a majority of their assets in stocks, with 60 percent allocated to equities and 40 percent in bonds and cash. He has set a year-end target of 1,590 for the S&P 500, and 14,250 for the Dow, the equivalent of 7.5 percent and 6.6 percent increases in those averages, respectively, from Friday's closing levels.
Wall Street's optimism rests on a major -- and possibly fragile -- assumption that despite widespread worry, the subprime mortgage crisis and resulting problems in the credit markets will not cause the first U.S. recession since 2001. Instead, most strategists expect slower-than-normal growth in the first half of 2008, followed by a pickup in the second half. "The equity market outl
Source: NewsDay.com