Taurus may be rising, but the market isn't
STUDY ABOUT WALL STREET SEERS' ABILITY TO FORETELL THE MARKET SHOWS THAT THEY CAN'T
Dallas Morning News
Here's a stock market tip -- and one you probably won't hear from any of those Wall Street prognosticators.
The planet Saturn will be moving away from the sign of Gemini on June 3, where it has been languishing for the last two years, and take up residence under the sign Cancer.
Translation?
``That means real estate stocks are going down, but health care stocks will go up,'' said psychic astrologer Marion Hensley. ``Restaurant companies, by the way, are going to be in dire straits in 2003.''
Stifle that disdainful smirk for a moment and remember this: Over the last two years, most investors might have been better off calling a psychic hotline than relying on the advice of professional market strategists. A review of the 2002 market forecasts of some two dozen prominent Wall Street pundits can be summed up in a word -- ``oops.''
``Not one analyst guessed that the Dow Jones industrial average would close 2002 under 10,000, let alone under 8,700,'' said James Stack, editor of InvesTech Research, which compiled the forecasts.
The Dow closed 2002 at 8,341, or 16.5 percent below the 10,000 level where it began the year.
Stack, one of a few analysts whose forecasts were on the money, said Wall Street's culture fosters what now seem to be overly optimistic outlooks.
``It is a strange phenomenon on Wall Street that analysts who are too bullish and are wrong are just said to be too optimistic,'' Stack said. ``But if you are too bearish and wrong, you get fired.''
In Wall Street's defense, those market strategists do come armed with some pretty impressive credentials, including MBAs and doctorates from top schools.
But the 2002 forecasts featured some duds.
So just how wrong was Mary Farrell, senior investment strategist at UBS PaineWebber?
In early 2002, with the Dow hovering around 10,000, she predicted that the index of 30 blue-chip stocks would hit 13,750 by year's end, one of the more optimistic forecasts.
Farrell said she doesn't like to make yearly market forecasts and only made this one because she was asked to do so on ``Wall Street Week,'' the PBS show then starring Louis Rukeyser.
``You are stuck with it for the year,'' Farrell said. ``But at UBS, as a strategist and as the year progresses, you can incorporate new knowledge.''
Farrell said her 2002 forecast missed the mark because investors generally ignored the improving fundamentals of the market.
Corporate earnings turned positive in the second quarter of 2002 and have been positive ever since, but investors were in no mood to buy stocks.
``There was this crisis of confidence with investors because of the corporate scandals, the accounting scandals and then, of course, terrorism is still overhanging the market,'' Farrell said. ``So you had an improving picture throughout the year, but, very unusually, it was not reflected in the stock prices.''
Economists, too, faced a difficult time at the crystal ball in the last year. Generally, many of them said they had expected business spending and hiring to have picked up in a meaningful way by now.
Over the last year, they've perused reams of economic data from both the government and the private sector, expecting to find signals of an impending breakthrough. Any meaningful uptick in activity has mostly remained elusive.
``It's already taken longer than I would have guessed,'' said Dallas Federal Reserve Bank President Robert McTeer in December.
Unlike some of the stock analysts, economists' predictions were less optimistic. For example, many at the end of 2001 predicted that the nation's unemployment rate would be higher than its current 6 percent. Although most economists say the nation stepped out of recession a year ago, that's technically not true until the National Bureau of Economic Research in Cambridge, Mass., says so.
``It's an unusual recession,'' said John Duca, a senior economist at the Dallas Fed.
On Jan. 31, 2002, Lynn Franco, director of the Conference Board's consumer research center in New York, said the worst of the recession was likely over. The board's consumer confidence index had risen for the second straight month that January -- just four months after the Sept. 11 terrorist attacks.
Instead, the corporate hangover exposed financial chicanery that sent the stock market into a tailspin and threatened economic growth. Offering up an economic forecast in the middle of that isn't easy.
``You're constantly getting mixed signals,'' Franco said, ``and it's hard to predict when you're in the middle of that inconsistency.''
Last updated on 04/19/08 08:36:08 PM
