imported post
teknobucks wrote:
Our short term momentum indicators have turned positive, confirming the bullish view of the primary trend indicators.
teknobucks........... :^
I kind of put market analysist and weathermen in the same category of educated guessing, but they seem to be getting better, if they could read from the same page! I came across this prediction, and seeing as how a "crystal ball" was envolved, it caught my attention (as cheese in a mouse trap). Never the less it is quite bullish, and I favor the yea, rather then the nay.
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Stovall's Sector WatchArchivesTuesday December 21, 2004 (10:59 pm ET)
A Quick Glance in My Crystal Ball
The coming year will see an even weaker dollar, a Fed funds rate of 4%, and more jobs. As for investing, bet on stocks to beat bonds.
I have compiled a series of macro-to-micro projections made by S&P's economists, strategists and analysts, for the coming year. Let's start with the big picture:
Economic Forecasts
Real U.S. gross domestic product (GDP) is expected to advance a healthy 3.6% in 2005, on top of the 4.4% rise seen for 2004.
The consumer should support economic growth, but not lead it, since Americans are basically spending all that they earn and continue to shoulder a mountain of household debt. Consumer spending will likely rise 3.1% in 2005, following the 3.7% growth expected for 2004.
Instead, the leadership will come from businesses, spending heavily to respond to new orders, as well as replace aging equipment.
The jobs picture is projected to improve, as businesses add staff to handle the expected increase in orders. Jobs growth is expected to increase to an average 133,600 per month in 2005, vs. the average 131,300 anticipated for 2004. What's more, the unemployment rate is seen falling to an average of 5.2% during 2005, vs. 5.5% in 2004.
A pickup in inflation is not expected to result from this continued improvement in economic growth. We forecast both the overall and core (excluding food and energy) consumer price indexes to rise by 2.3% in 2005.
The Federal Reserve should continue to raise short-term interest rates until establishing a neutral Fed funds rate of 4% just prior to Alan Greenspan's term expiration in January, 2006. The yield on the 10-year Treasury note should edge up to 5%.
The U.S. dollar should continue sliding to $1.45 to the euro and 95 yen per dollar by yearend, 2005.
The twin deficits will remain large. The current account deficit is seen swelling to $738 billion in 2005, from the $662 billion for 2004, while the U.S. budget deficit will likely narrow to $338 billion from this year's $412 billion.
Crude oil prices for the benchmark West Texas Intermediate grade are seen slipping to $39 per barrel by the end of 2005 from the current $45.
Global economic growth rates are all projected to be positive, ranging from 1.8% in Japan and 1.9% in Europe to 3% for Canada and and 3.5% Latin America. Some of the fastest growth is likely to come in non-Japan Asia, with an overall forecast of 6.2% (including a 7% advance projected for China).
Investment Outlooks
We still favor equities over bonds and cash, as interest rates rise and corporate profits hit new highs.
S&P's Investment Policy Committee recommends an asset allocation for a typical balanced investor of 45% U.S. equities, 15% foreign stocks, 25% short-term bonds, and 15% cash.
Our S&P 500 target price for yearend 2005 is 1,300, indicating an anticipated 8% advance over our 1,200 target for 2004. The Nasdaq composite index is seen closing 2005 at 2,360, 9.5% higher than recent levels.
Investment catalysts include a gradual reduction in oil prices, the weakening dollar's effect on foreign revenues and earnings, moderate inflation, a double-digit increase in corporate earnings, and a market price-earning ratio that is two percentage points below its 16-year average. We believe all these factors will be sufficient to counterbalance a 1.75% increase in short-term interest rates during the year.
Earnings for the S&P 500 are expected to advance 10% in 2005, to $74 per share, up from the 23% rise to $64 for 2004. Earnings-per-share growth estimates and current valuations of mid- and small-cap stocks also continue to look attractive. Indeed, 34% of the stocks with our highest investment ranking, 5 STARS (strong buy), are under $5 billion in market value.
As this bull market -- cyclical or otherwise -- is getting on in years, we recommend leaning toward companies with the highest S&P earnings and dividend quality rankings of A-, A, or A+.
Risks to this modest scenario are many, including a return to oil prices in the $50 to $60 range, contributing to a slowdown in U.S. and foreign economic growth, and a free fall in the value of the U.S. dollar, which would hurt confidence and cause a spike in inflation concerns and yields.
The S&P Europe 350 Index is forecast to rise approximately 9% next year, which is in line with our earnings growth forecast.
Median earnings growth in Asia (excluding Japan) is expected to slow to 11% to 2004, from 15% in 2004.
S&P Asia equity analysts' recommended country weightings are: Overweight Hong Kong and Malaysia; marketweight Australia, Indonesia, Japan, New Zealand, Philippines, Singapore, South Korea, Taiwan, and Thailand; underweight China.
Sector and Stock Recommendations
If 2003 was a great year (the S&P 500 rose 26% and saw only 4 of its 114 industries post declines), 2004 was a good year (the 500 gained 7.4% through Dec. 17, while 80% of the subindustries advanced). We think 2005 will also be a good year, but not a great year.
Sector catalysts for the coming year include rising dividend payouts and increasing M&A activity. Companies in the S&P 500 have approximately $600 billion in cash that can be put to work buying back shares, paying out dividends, reinvesting in their own businesses, or in acquiring others.
Concerns include rising interest expenses and higher commodity costs, and decelerating earnings growth rates.
The Industrial sector carries an overweight recommendation due to the continued improvement we see for the U.S. economy. Signs of life emerging from manufacturing also should aid results.
Consumer staples has an underweight recommendation, due to expected pressure from higher input costs, rising competition, and a weaker retail environment.
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Thats it!
Rgds, and be careful!
Spaf
Spaf
Spaf
