High times on Wall Street have given way to lower expectations, according to a survey released Tuesday.
The stock market will spend the rest of 1998 clawing its way back from a summertime collapse, but plans for any record-shattering parties are on ice until next year, Wall Street strategists said in a poll conducted Sept. 22-23 by Reuters. Among other findings, the more moderate pace of stock market gains are here to stay, with expectations for 1999 calling for a slower advance than this tumultuous year.
Slowing global economic growth, weakening corporate earnings and the near-collapse and emergency bailout of U.S. hedge fund Long-Term Capital Management have produced a level of anxiety on Wall Street not experienced in years.
The forecasts in September revealed the extent of the uncertainty when compared with those of June.
On average, strategists now expect the Dow Jones industrial average to end the year at 8,805, up 11%, with a median forecast of 8,600, a 13% rise.
That is sharply lower than the roughly 20% increase predicted in June and would break the market's unprecedented three-year run of 20% or better gains.
Of course, in June the Dow was traipsing along in territory north of 9,000 and the nearly 20% sell-off that slammed blue chips in August was still far off.
Some of Wall Street's most bullish analysts have stuck to their near-term guns, although even those strategists said some outside help might be needed to reach their targets.
"I'd still say I have a 50-50 chance of seeing my 10,000 target on the Dow achieved by year-end," said Robert Froehlich, chief investment strategist at Scudder Kemper Investments.
Froehlich, who set his 10,000 target at the end of 1997, said for Dow 10,000 to happen now, "interest rate cuts have to get going around the globe, and I'm also looking for a lot of corporate stock buybacks to start happening."
Not all believe a recovery will occur this year or even next. Warburg Dillon Read strategist Gail Dudack put the Dow's outlook at 7,500 for 1998 and 8,000 for 1999, meaning no gains for blue chips during the next 15 months.
Further evidence of the sharp sentiment swing: Strategists such as Goldman Sachs' Abby Joseph Cohen, who in June had one of Wall Street's more conservative outlooks, now possesses one of the most optimistic just by holding steady.
Cohen has stuck to her 9,300 target on the Dow throughout the market tumult, just as she resisted changing her target when the Dow closed as high as 9337.97 on July 17. Since June, enough of her peers have pulled back that she now sits among the most bullish half of the group.
For 1999, expectations on average are for a rally near or slightly into double-digit percentage terrain on the Dow and the Standard & Poor's 500. The technology-laden Nasdaq composite is seen outperforming with a 17% rally in 1998 and about 15% in 1999.
However this year turns out, most strategists will be able to look back and find one point at which their prediction proved dead-on accurate--and dead wrong.
"I'm not as smart as I looked in July, and I'm not as dumb as some people think I am today," Froehlich said.