Goldman strategist sees rising stocks

CBS MarketWatch ^ | July 21, 2002 | Goldman strategist sees rising stocks (Cohen Alert)

[StockAyatollah]

Goldman strategist sees rising stocks By August Cole, CBS.MarketWatch.com Last Update: 11:03 AM ET July 21, 2002

NEW YORK (CBS.MW) -- Goldman Sachs' top U.S. market strategist, a renowned bull, said Sunday that U.S. stocks are going to get back on their feet and head higher.

Abby Joseph Cohen said on CBS's "Face The Nation" that stock prices are set to go "higher, not lower." The comments were made on the heels of a week that saw the Dow Jones Industrial Average ($INDU: news, chart, profile) give up 7.6 percent and the Nasdaq Composite ($COMPQ: news, chart, profile) fall by 3.9 percent. See full story.

She also remarked that the tell-all period that has roiled Corporate America is nearing its end. "We're close" to the end of the corporate revelations, Cohen said.

To that end, she predicted, the upcoming Aug. 14 deadline for top company executives to verify their firms' books will be a positive for the markets.

Allen Sinai, chief global economist at Decision Economics and a guest on the Sunday-morning news program, commented that U.S. economic fundamentals and prospects are "the best in the world."

In April, Goldman's Cohen had said her 2002 target for the Dow ($INDU: news, chart, profile) was 11,300 and for the S&P 500 ($SPX: news, chart, profile) it was 1,300.

As of Friday, the Dow closed at 8,019. The Nasdaq closed at 1,219. The S&P 500 ended the day at 848.

[palmer]

She urged caution in 2000, but reversed in 2001 back towards tech stocks. See July 10th, 2001 presentation

[GregoryFul]

Don't get me wrong. I think that the PPT is a good idea, in line with insurance for floods, hurricanes, and other natural disasters. It acts to prevent more serious damage. It protects capital, and benefits the majority. It is another good that can come from control of money.

If the stock market were smoother, and reflected the growth in profits and retained value of the composite companies, we would have a better economy. Insurance against catastrophes is a good thing. Conversly, the PPT should also act as a counterweight to "irrational exuberiance".

[Soren]

I have to admit I've seen a variety of numbers, mostly ranging from 26-40. The 34 I quoted was based on info supplied by a freeper today for the S&P 500 as of Friday's close and confirmed from a separate source here. These numbers are in line with numerous other citations I've seen. My guess is the variation is due to how earnings are calculated: trailing versus projected, pro forma versus GAAP, etc. What is the source of the 18 you mentioned?

[Soren]

Followup to my previous post. I noticed you mentioned "excluding one time charges" and the source I linked to is on a GAAP basis. That would be a huge difference between GAAP and pro forma! When comparing to historical P/E levels, I would be inclined to rely more on GAAP, because historically the use of pro forma earnings was not nearly so prevalent as it is today, so the historical P/E levels are probably more representative of a GAAP basis. Still, I'd be interested in looking at the source of your number.

[Roger_W_Isom]

The "experts" I've heard so far, on Fox are NOT in a upbeat moof on how the market will behave come Mon..... Even THEY are saying, straight out, "We DON'T know where the market will end up at the closing bell" That, to ME, hints they are concern SOMEBODY, or more likely, some GROUP has been manipulating this market!!!!! On MSNBC they even allowed ONE viewerto ask the question....

COULD AL QEADA BE MANIPULATING THIS MARKET??????

when THAT question is allowed its OBVIOUS that there are some VERY strange stories being heard on the market floor.....

INDEED its only a TINY step away from that to an even more LOGICAL question...

COULD THE SAUDIS, IRAQIS,& PALESTINIANS LEADERS BE MANIPULATING THIS MARKET?????

[Roger_W_Isom]

In a market such as THIS what happens when THOSE options get dumped as WELL????? I see this market tanking ANOTHER 1000-2000points EASILY if there is even a HINT of ANYTHING else WRONG......

[Roger_W_Isom]

That was what I was thinking TOO!!!!!

[TightSqueeze]

...and a lot on the short side who would cover rapidly...

Yeah and for a profit too.

[shred]

I agree that there is a difference between GAAP and those numbers that exclude one time charges. My source is two major wire house economists numbers. Certainly one can argue that they are in the business of getting people to buy equities, so they report those numbers that are in their best interest. I notice that your source is a website devoted to pushing gold and gold related equities. It certainly is in their best interest to get people to dump stocks and buy gold, hence perhaps why they pump the higher figures.

[TightSqueeze]

Now that she is upbeat, we can feel a little better because she is a very wise woman.

I believe you mistake wisdom for backstretch knowledge, Cohen is the penultimate insider.

[Roger_W_Isom]

If there WERE an attack on the market their target would HAVE to be the computer programs that protect the system.... THAT way once the attack begins and the market plunges the government would not be able to regain control of the markets by employing the so-called circuit breakers.... thus allow the market to plummett even FURTHER!!!

[dennisw]

Stocks will suck and get whipsawed on down for 3 more years at least. Been down for 2 years by now. So this makes 5 in all.

I am amazed at the something for nothing crowd that thinks 17 years of an up market gets cured in a few months....

Fugeddaboudit!

[Roger_W_Isom]

To be honest My only thought is why SHOULDN'T the market collapse to the 3000 or evn 2500 point level.... given THAT we MIGHT find out who the real scondrel are in this market... and thus we can weed out the bad apples in this bunch....

[Roger_W_Isom]

And people wonder why we have ENRONS, GLOBAL CROSSINGS and WORLDCOMS given THIS kind of teachins?????? THAT is the kind of teachings that is GUARANTEED to generate more of this garbage!!!!!! stockholder would be ENTIRELY WITHIN THEIR RIGHT to sue this scum as a why to prevent further ENRONS!!!!!

[cinFLA]

I've said this on about 50 threads, but it is worth repeating. The S&P 500 P/E is 34. The historical average is 15. The typical bear market trough tends to overshoot and go down to 8-10. If history is any guide, this market has another 50-70% to fall. (15/34=.44, or a 56% drop). These are facts. Whether history repeats or not, that is something each investor must decide for themself. If you think the bottom is near, you should be aware of how much this bottom will deviate from historical precedents.

Obviously you ignore data that does not fit your theory!

[GaltMeister]

"The 34 I quoted was based on info supplied by a freeper today for the S&P 500 as of Friday's close..."

That P/E figure came from BigCharts.com, you can click on this URL:

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=sp500&sid=0&o_symb=sp500

[razorback-bert]

P/E Ratio, Dividend Payout

Copyright © 1995 - 1997, HRConsultants

The next chart shows the price-to-earnings ratio for the S&P 500. As may be seen, P/E hit an all-time high in 1991 at about 26, decreased to 16 in 1994 as earnings recovered from the 1990-91 recession, and has since increased to a current value of about 23 with the 1995-97 runup in stock prices. The current S&P 500 P/E is at the upper end of its historical range and is comparable to the 1987 high of 23. Thus, from this measure of value, stocks are currently somewhat overpriced. If stocks are bought at one of the historic P/E low points, when the P/E ratio is below about 8 (e.g, in 1942, 1950, 1974, 1980, or 1982), the future expectation is much better than if stocks are bought at current levels.

Another question relating to earnings and yield is the payout of earnings as dividends. The next chart shows the payout percentage for the S&P 500. This chart shows that only about 38 percent of earnings is currently being paid out in dividends. This value is at an all-time low. This is in contrast to previous historic lows, which in the past have occurred near market low points (e.g, 1950, 1974, 1980). Since the S&P 500 index is not near historic lows by any other measure, it would appear that corporations have elected to pay out less of their earnings as dividends, perhaps because current corporate rates of return on invested capital are high, and dividends are doubly taxed.

Go to Next Topic (Return with Reinvested Dividends)

Return to Big Picture Index

[shred]

Here ya go, direct from the horse's mouth:

http://www.spglobal.com/earnings.html


As you can see, many ways to distort the actual figure for
the S&P p/e.

My question is, since as of March 2002, when the market was at it's peak for the year, the S&P itself says "operating" p/e was 16 and "as reported" was 36, and since then, earnings have improved (albeit slightly) and the market has dived, shouldn't those ratios already be markedly lower for TTM figures as of July?

shred

[shred]

In other words, since the S&P was at 1100 + in March and the "higher" way of calculating P/E was at 36, and it now stands at less than 850, a decline of almost 25%, shouldn't the current "as reported" P/E be about 27? And "operating earnings" p/e is now roughly 17.25.

I think BigCharts and the gold website are going by the older March numbers.

The more up to date numbers one can argue are still overvalued, but with interest rates at 40 year lows, a case can also be made that the market is fairly valued in here and may indeed be getting cheap.

[GregoryFul]

A five year downtrend would be exceptional! And unlikely, if one played the odds. It is more likely that we are near the bottom, barring abnormal shocks. My guess is that 1999 saw unusual inventory building in anticipation of supply disruptions in 2000, due to Y2K uncertainties, thus a blow off into early 2000 of stock prices. 2000 and 2001 saw reductions in orders, as inventories were consumed. Perversely, the supply chain can be dramatically affected by slight changes in orders at the end of the pipe. Each stage of the chain amplifies the delta in demand (and earnings), up and down. (Ref., The Beer Game). Because investors pay a multiple of growth, stock prices also amplify the change in corporate earnings. The whold system is extremely sensitive to changes in earnings.

Earnings are probably near their nadir this quarter, and in future quarters, will show positive y/y and pq/q growth as the subsidence of inventory glut, the technology advances, and the low interest rates work to spur new investment (as long as the consumer holds up his leg).

The future could be bright, if this country can maintain a reasonably safe environment for investment. That is the overriding uncertainty in the market at this time, I believe. Are the majority of company's books "honest"? (? = if the US govt would draw and quarter some of these CEOS, it would help) Will the US be attacked in a significant way in the near future? (?) Will the political bickering break down into civil disruption/conflict? (Unlikely, too much social control, too much of a stake in status quo) Will the Fed inflate the currency to avoid depression? (Yes, gold, currency, interest rates, real asset prices, financial asset prices, augur) Will the consumer continue to buy goods? (Likely, we are not in an austere mood)