(January 10) – “As Abby Joseph Cohen puts it, she has been ‘jumping up and down’ since the early 1990s, telling clients across America that the stock market had plenty of room to grow, even when other strategists said the opposite was true,” writes Johnathan Furebringer.
“Using conservative and well-researched earnings estimates and factoring in the economy’s low-inflation environment, Ms. Cohen, the diva of this bull market, has argued in her measured way that the stock market’s undervaluation was a reason to expect good returns from equities.
“Well, she’s not jumping up and down any more. In her 2000 forecast, Ms. Cohen, market strategist at Goldman Sachs, said the stock market is fairly valued. In an interview last week, she said the market has been fairly valued since March.
“She is emphasizing this point now, she said, because ‘this is the first time we have spent any length of time at fair value in this bull run.’ Then she added: ‘We no longer think the market is cheap.'”
“That is a big change. It means, she said, that price appreciation will move back to its historical trend, that is, high single-digit annual increases in the Standard & Poor’s 500-stock index.
“That pace would be a lot slower than investors are used to. In 1999, for the fifth consecutive year, the S&P 500, as well as the market’s two other marquee indexes — the Dow Jones industrial average and the NASDAQ composite — are heading for double-digit returns.
“So why haven’t alarm bells been ringing since she issued her report Dec. 16? It is possible that many investors have ignored this warning because her market forecasts have always been understated. While she has been correct about the market — and has not buckled during sharp downturns during 1997 and 1998 — her forecasts for the gains in the S&P 500 and the Dow have been short of actual performance.
“Ms. Cohen says she does that on purpose. ‘I am trying to come up with a forecast that is not on the extreme end of the bell curve,’ she said. ‘I want a forecast that we are comfortable with achieving.’
“Because of the understated nature of her forecasts, the themes she lays out each year assume added importance. And, until now, they have remained pretty constant.
“She often reminds investors, for example, that market advances follow a staircase pattern — spurts followed by trading ranges. That theme should be even more relevant in a market with slower growth.