12 Big Surprises for 2005

• Federal Reserve interest rate hikes halt in February and are not resumed until late summer as policymakers become more data-dependent. The economy disappoints, with less than 2.5% annualized growth, but stocks begin to discount a stronger recovery in 2006, and the S&P 500 defies skeptics to end the year up 15%. Moderately low rates allow the housing bubble to continue to inflate, and companies such as Orleans Homebuilders (OHB Quote), William Lyon Homes (WLS Quote), KB Home (KBH Quote) and Toll Brothers (TOL Quote) continue their multiyear march on aggravated short-sellers for most of the year.
• After a year on the outs with investors, makers of generic drugs stage a stunning comeback. The catalyst is a growing belief among investors in Big Pharma names that Merck (MRK Quote) and Pfizer (PFE Quote) really are down for the count and won't come back without hooking up with innovative small drug and generic drug manufacturers. Companies like Par Pharmaceuticals (PRX Quote) and Barr Labs (BRL Quote) advance 50% by the end of 2005 as they catch a whiff of their old speculative fever.
• Congress repeals sections of the Sarbanes-Oxley Act of 2002 as companies persuasively complain that they are spending more on nickel-and-dime securities compliance than on research and development.
• Hewlett-Packard's (HPQ Quote) board ousts Chief Executive Carly Fiorina and replaces her with a former top executive at Dell (DELL Quote). The new management team pares down the production and distribution infrastructure, revamps sales and marketing and produces a comeback in just six quarters. Growing acknowledgment that the change is working catches investors by surprise, but the stock ultimately becomes a leading name in the Dow Jones Industrial Average for 2005.

Of course, the biggest, and most important, surprises are the hardest to see from the vantage point of a single observer. So let me know what you think the biggest surprises of 2005 will be. Email me at [e-mail], put SURPRISE in the subject field, and I'll compile the most creative and provocative reader ideas into a column in late January.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Goodrich Petroleum, Avanex, Bookham and Orleans Homebuilders to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.