Strategists’ Words Carry Little Weight These Days

Goldman, Sachs & Co.’s Abby Joseph Cohen said stocks will extend their gains into next year, and UBS Warburg’s Ed Kerschner said corporate profits will be better than expected.

It used to be that comments such as these from two of Wall Street’s most bullish strategists would spark a rally.

Not Tuesday.

Stocks fell for the second day in three on concern the recent gains aren’t justified by the outlook for corporate earnings.

“In the bull market we had several years ago, it seemed to add fuel to the fire” when Cohen or Kerschner weighed in, said Rob Cummisford, manager of Fifth Third Small Cap Growth Fund. “It’s not like that any more.”

In notes to clients Tuesday, Cohen and Kerschner said the recent rally is likely to continue. The gains are justified because the economy will rebound by the second half of next year and boost corporate profits, they said.

“Our year-end 2002 price targets suggest additional double-digit gains,” Cohen said. She left unchanged her prediction that the S&P; 500 would be fairly valued if it reached a range of 1,300 to 1,425 by the end of next year, a gain of at least 14% from Tuesday’s close of 1,142.66.

Kerschner raised his forecast for earnings growth of S&P; 500 companies, citing the success of the war in Afghanistan, which should help consumer confidence.

“We slashed our S&P; 500 [profit] estimates following the terrorist attacks, but earnings are looking ‘less bad’ than expected,” Kerschner wrote in the report. He maintained his S&P; forecast at 1,570 for next year, a jump of 37% from current levels.

The S&P; 500 fell 0.7% Tuesday.

Kerschner, whose research is sent to individual investors and institutions, declined to comment and Cohen did not return a call seeking comment. Her research is distributed to institutional clients.

Optimistic opinions from analysts often lifted stocks during the late 1990s. On Aug. 5, 1998, for example, stocks climbed after Cohen, Kerschner and Tom Galvin, then with Donaldson, Lufkin & Jenrette, said stocks were a good buy.

In that instance, they were wrong about the market’s direction for the next two months, but right about the longer-term trend. Stocks plummeted in late August and early October after Russia defaulted on its debt and the Long Term Capital Management hedge fund collapsed. That November, stocks climbed past their Aug. 5 levels.

“On a one-or two-day basis during the bull market, Abby Cohen in particular moved the market,” said Henry Cavanna, an asset manager at J.P. Morgan Fleming Asset Management.

“Today there’s such a divergence of opinion” that no single strategist can sway a majority of investors, he said.