Key Strategist Eases Holdings in Stocks

One of Wall Street’s most steadfast stock bulls suggested Tuesday that it’s time to take a little money off the table.

Abby J. Cohen, investment strategist at brokerage giant Goldman, Sachs & Co. in New York, cut back modestly on stocks in her recommended portfolios, a decision she said stemmed from the sharp gains in key market sectors this year.

Weighed down in part by Cohen’s shift, the stock market closed mostly lower, with technology stocks taking the biggest hits. The Nasdaq composite index slid 124.67 points, or 2.5%, to 4,833.89.

But trading volume remained light overall for a second session, which traders said may mean that many big investors have already closed the book on the first quarter, which ends Friday.

Cohen, perhaps the best-known market strategist of the last decade because she has remained calmly--and correctly--optimistic about the economy and the market, advised clients to trim stocks from 70% to 65% of assets within diversified portfolios.

Within more aggressive portfolios, Cohen now suggests holding 85% stocks and 15% cash (or money market securities), compared with a previous recommendation of 95% stocks and 5% cash.

Even with the cuts in her stock weightings, Cohen remains more tilted toward stocks than many of her Wall Street peers. A Bloomberg News survey of major brokerage strategists showed stock allocation for diversified portfolios was just 50% at Merrill Lynch, 55% at A.G. Edwards and 55% at Salomon Smith Barney, compared to Cohen’s new allocation of 65%.

Most bullish, according to the survey, are Lehman Bros. and Donaldson Lufkin & Jenrette Securities, both with 80% stocks.

In all of those diversified portfolios, the percentage not in stocks is allocated among bonds, cash, commodities and/or real estate.

Brokerage strategists use such allocation recommendations to make a point about how they view the expected returns on various assets relative to the risks.

Cohen suggested that stocks’ gains this year--or, at least, the gains in the hottest market sectors--have been so generous that prices already have taken into account much of the improvement in corporate profits that she expects over the next year.

She said she expects the Standard & Poor’s 500 index, which eased 1.1% on Tuesday, to reach 1,625 within 12 months. That would be a gain of about 8% from current levels--well below the 20%-plus investors have been used to earning annually on the blue-chip S&P.;

Given lower expected returns, Cohen said, “We conclude that equity exposure should no longer be notably above normal weightings.”

In the case of technology stocks, Cohen noted that she recently made the case that they are no longer undervalued. But that sector remains her largest single stock bet, at 35% of her equity portfolio.

Cohen, like most Wall Street strategists, didn’t foresee how spectacular stocks’ gains would be in the late 1990s. But she is given credit for stepping up and providing psychological support for the market at critical points.

In particular, as markets crumbled in the wake of the Russian currency crisis in September 1998, Cohen raised her recommended stock weighting in diversified portfolios to 72% from 65%. She trimmed that slightly, to 70%, in January 1999, after stocks’ huge gains in the fourth quarter of 1998.

Some Wall Street pros have long suggested that, even if Cohen were to become extremely bearish toward stocks, she would avoid drastic cuts in her equity weightings because she knows she could have a dramatic effect on markets.

Although tech shares overall were lower Tuesday, the declines weren’t out-sized. Intel, which has surged recently, fell $7 to $135.69, and IBM lost $4.38 to $122.50. Cisco Systems slid $2.19 to $77.88--restoring Microsoft (up 25 cents to $104.31) as the No. 1 company in market value. Cisco surpassed Microsoft on Monday.

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Market Roundup, C8

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How Bullish? A Sampling of Views

Goldman Sachs investment strategist Abby J. Cohen on Tuesday trimmed her stock allocation in her model portfolios. Here’s a look at Cohen’s new recommendation for stocks’ weighting within a diversified portfolio, compared with the recommended weightings of other major Wall Street firms in similar portfolios. (The balance of these portfolios would be invested in bonds, cash, commodities and/or real estate.)

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Lehman Bros.: 80%

DLJ Securities: 80

Prudential: 75

Banc of America Sec.: 75

Goldman Sachs: 65

A.G. Edwards: 55

Salomon Smith Barney: 55

PaineWebber: 52

J.P. Morgan: 50

Merrill Lynch: 50

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Source: Bloomberg News