A look back…and forward, at stock market predictions
At VIDA Wealth Partners, we view stock market predictions as nothing more than humor and entertainment. However, we also realize that much of the general public is apt to believe most of what they read or hear in the media. With this in mind, we’d like to provide this dynamic document as a resource for our clients to continually check back with us, to view past predictions, and to view current predictions as a baseline for the future.
Probably the most infamous prediction in recent history was this cover story on the August 13th, 1979 issue of Business Week: "The Death Of Equities". The Dow Jones Industrial Average was around 800 the day that it ran. What's happened since? Even through the economic disaster we’re currently experiencing, the Dow as of this writing is hovering a bit over 8000 today.
“A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" — Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500. AIG "could have huge gains in the second quarter." — Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.
“I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They're not in danger of going under I think they are in good shape going forward." — Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008
Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.
"The market is in the process of correcting itself." — President George W. Bush, in a Mar. 14, 2008 speech
"No! No! No! Bear Stearns is not in trouble." — Jim Cramer, CNBC commentator, Mar. 11, 2008
Five days later, JPMorgan Chase took over Bear Stearns with government help, nearly wiping out shareholders.
"I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." — Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008
In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup needed an even bigger rescue in November.
"In today's regulatory environment, it's virtually impossible to violate rules." — Bernard Madoff, money manager, Oct. 20, 2007
About a year later, Madoff — who once headed the Nasdaq Stock Market — told investigators he had cost his investors $50 billion in an alleged Ponzi scheme." "I'm not an economist but I do believe that we're growing." —President George W. Bush, in a July 15, 2008 press conference
Nope. Gross domestic product shrank at a 0.5% annual rate in the July-September quarter. On Dec. 1, the National Bureau of Economic Research declared that a recession had begun in December 2007.
"I think Bob Steel's the one guy I trust to turn this bank around, which is why I've told you on weakness to buy Wachovia." —Jim Cramer, CNBC commentator, Mar. 11, 2008
Two weeks later, Wachovia came within hours of failure as depositors fled. Steel eventually agreed to a takeover by Wells Fargo. Wachovia shares lost half their value from Sept. 15 to Dec. 29.
"Existing-Home Sales to Trend Up in 2008" -- Headline of a National Association of Realtors press release, Dec. 9, 2007
On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million -- down 11% from a year earlier -- in the worst housing slump since the Depression.
"I think you'll see (oil prices at) $150 a barrel by the end of the year" -- T. Boone Pickens, June 20, 2008
Oil was then around $135 a barrel. By late December it was below $40.
"There's growing evidence that parts of the debt markets…are coming back to life." —Peter Coy and Mara Der Hovanesian, BusinessWeek, Oct. 1, 2007.
Here are other January, 2008 predictions on where the DIJA and the S&P 500 would end up at the end of 2008: Dow 14,400, S&P 1520– "the market has a tradition of rallying pretty hard in the second half of a Presidential election year." – WILLIAM GREINER, Chief Investment Officer, UMB Financial. Greiner's crystal ball has a strong track record, having landed him at or close to the top of the list of 80-plus stock market strategists BusinessWeek has polled in past years.
Dow 15,100, S&P 1675 – By Levkovich's calculations, stocks are at bargain levels seen in only 90 of the past 550 months. "In every single instance," he adds, "the markets were higher 12 months later." – TOBIAS LEVKOVICH, Chief U.S. Equity Strategist, Citigroup
Dow 15,150 S&P 1680 – With corporate balance sheets strong and the U.S. unemployment rate low, Trennert figures the odds of a recession are low.
JASON TRENNERT, Chief Investment Strategist, Strategas Research Partners. Rated one of the best market strategists by Institutional Investor magazine in four of the past five years,
Dow 15,300, S&P 1700 – He expects a series of "aggressive" interest-rate cuts by the Federal Reserve to bolster consumer spending, economic growth, and stock prices next year, and for a weaker dollar to inflate the overseas earnings of multinational companies. – BERNIE SCHAEFFER, Chairman, Schaeffer's Investment Research —a past winner of BusinessWeek's annual stock market forecasting contest
Dow 14,700, S&P 1675 – "2008 will be a time when investors will need to continue to look for ways to protect against inflation." – THOMAS McMANUS, Chief Investment Strategist, Banc of America Securities
Dow 15,250, S&P 1700 – "2008 will bring clarity on U.S. economic health and the sustainability of robust earnings growth that the S&P 500 has generated in recent years" DAVID BIANCO, Chief U.S. Equity Strategist, UBS Investment Research
Dow 14,800, S&P 1675 – "If you combine our expectations for a 2.5% rise in inflation, a 2% increase in GDP, and 5% earnings growth, that's a pretty friendly backdrop for equities." – LEO GROHOWSKI, Chief Investment Officer, BNY Mellon Wealth Management Among the stock market strategists BusinessWeek surveyed a year ago, Grohowski came closest to pegging where the Dow, the S&P 500, and the Nasdaq Composite would finish in 2007.
NOTEWORTHY 2009 PREDICTIONS Global stocks will withstand a "full-blown" recession and surge in 2009 as cheap valuations and efforts by governments to restore confidence in the financial system lure investors back to equities “The Standard & Poor's 500 Index may rally 53% to 1,300 by the end of 2009.”
David Bianco,– UBS Market Strategist, January 2009
The New York-based strategist, who a year ago predicted a 2008 advance of 16% for the S&P 500, is now forecasting a gain that would exceed the index's best annual performance on record.
“The fallout from the current financial panic will weigh heavily on the economy through most of next year. The unprecedented policy response to the panic ensures that 2009 won't be even more difficult.” – Mark Zandi, Chief economist, Moody's Economy.com
"Sentiment is wildly, wildly negative right now, just horrific. And that's exactly the time when you have to just hold your nose, take the other side of the trade and buy." – Barry Ritholtz, CEO, research firm Fusion IQ
Prediction: The S&P may gain up to 30% from its October 2008 lows.
"When the pessimism is so thick that you can cut it with a knife, that's when great fortunes can be made by people who are willing to be contrarian and invest in things that nobody else wants to." – Brian Wesbury, Chief economist, First Trust Advisors