Wall Street can't agree on where stocks will go in 2003

By Rachel Beck
Associated Press

NEW YORK — Stocks will go up in 2003. Or is it down? How about nowhere?

Confused yet? It seems that Wall Street is, too.

Take a look at the forecasts for 2003 by some of the nation's biggest investment firms, and you will see some very different views on where the stock market is heading next.

It's just another twist in this impossible-to-navigate market. After nearly three years of big stock-price declines, even the experts can't agree if we are through the worst yet.

The job of Wall Street's investment strategists is to predict for their clients — large institutions and individual investors — the likely direction of the stock market.

At this moment it's a very tricky task. That's because there are so many unknowns still weighing on the market.

Will the United States go to war against Iraq? Against North Korea? Will the economy's pace accelerate soon? Will corporate earnings really improve?

Investors, of course, are hoping for some relief next year. They've been on a wild ride — mostly downhill — since the boom market went bust in the spring of 2000, and this past year was particularly unnerving given the dramatic price swings.

Stocks started out 2002 looking up, but a weakening economy and a rash of corporate scandals sent prices plunging in the late spring. They bounced back by mid-summer, only to tumble to five-year lows by the fall. Then they rallied again in mid-October.

Now the focus is on what's to come.

A survey this month of 1,000 investors by brokerage firm USB Warburg and the Gallup Organization found 44 percent are optimistic about the performance of Wall Street in the next 12 months. That's up from 36 percent in November.

Not since 1929 to 1932 has the market had four years of declines in a row, according to the Stock Trader's Almanac.

But the mixed outlook coming from Wall Street doesn't ease many nerves.

Forecasts for the Standard & Poor's 500 stock index — which is considered the standard for measuring the broad market's performance and is made up of leading companies in leading industries — are all over the map.

There are even strategists from the same firms predicting dramatically different things for the coming year.

Some are telling clients to brace for more trouble ahead.

J.P. Morgan's Carlos Asilis has a target of 800 for the S&P, one of the lowest on Wall Street. That's about 10 percent below what the S&P is trading today, which is around 900. It is also nearly half of its all-time high of 1,527 from March 2000.

At Merrill Lynch, chief U.S. strategist Richard Bernstein sees the S&P at 860 at the end of next year.

He has also reduced the amount of money that investors should hold in stocks. His model portfolio now includes 45 percent stocks, 35 percent bonds and 20 percent cash. He used to recommend 50 percent stocks, 30 percent bonds and 20 percent cash.

Bernstein's view differs from his Merrill colleague, chief market analyst Richard McCabe. He is much more upbeat, saying that "2003 has a fairly high probability of being an up year." He is forecasting the S&P to go as high as 1,040.

Market-watchers at S&P forecast their 500 stock index to hit 1,050 by year-end, and just boosted their recommended stock allocations from 60 percent to 65 percent, shifting some money out of bonds.

At Morgan Stanley, chief U.S. strategist Steve Galbraith also predicts the S&P may go to 1,050.

"Significant price declines, a clear but modest upswing in earnings ... and the passage of time have combined to suggest that probabilities favor positive stock returns ahead," he said in a recent report.

Salomon Smith Barney's senior institutional equity strategist Tobias Levkovich gives an even more bullish view, forecasting the S&P to hit 1,075 by the end of 2003.

But there are also those strategists who don't see much changing in the market over the next year. They think stocks will swing up and down, and may close out next year almost exactly where they started.

"We may travel a long way and go nowhere. It's a very likely possibility," said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla.