Stocks Will Keep Rollin' in '07

Just about every Wall Street strategist is bullish on stocks for 2007. But there's no consensus on which sectors will provide the best returns amid uncertainties about the economy, the Federal Reserve and corporate profits -- not to mention geopolitics.

For example, PNC Advisors' Jeffrey Kleintop likes tech and health care, while Citigroup's Tobias Levkovich prefers tech and consumer discretionary stocks. Prudential Equity Group's Ed Keon would still bet on financials, while T. Rowe Price's Larry Puglia would choose biotech and acquisitive mega-caps. (See the table below for details.)

The dichotomy of opinion suggests strategists and prognosticators are confronting dueling fears: If investors don't take risk, they'll miss out on the best returns.

But at the same time, the consequences of a quick reversal in the liquidity landscape or market sentiment could be dire. The markets suffered such a reversal in April and May, when investors retreated from risky investments after Japan pulled the plug on its accommodative quantitative easing policy.

In all, strategists are optimistic about next year's stock market returns, putting the S&P 500 anywhere between 1500 and 1630 next December -- or 5% to 14% above 1425, a level the index reached multiple times in December. Many pundits suggest that investors ride the wave of liquidity and low volatility by buying aggressive growth stocks.

"Liquidity is increasingly recognized as 'the' defining force in the economy," writes James Paulsen, chief investment strategist at Wells Capital Management, which had more than $180 billion under management as of Sept. 30.

Paulsen believes the S&P 500 will soar through the first half of the year, topping out with the S&P 500 at 1675. He then sees the economy overheating a bit and the S&P pulling back to finish the year at 1550.

But even optimists such as Merrill Lynch's U.S. sector strategist Brian Belski are restrained in their ebullience.

Many Ways to Get There From Here Most strategists are bullish on 2007, but the agreement ends there.
Strategist	2007 Target(s)	Favorite Sector(s)
Tobias Levkovich, Citigroup	Dow 14,000; S&P 1600	Consumer discretionary, information technology
Jeff Kleintop, PNC Investment Advisors	S&P 1525	Tech, health care, industrials
James Paulsen, Wells Capital Management	S&P high mid-year 1675, year-end 1550	Industrials, basic materials, information technology, consumer discretionary, small-caps
Brian Belski, Merrill Lynch	NA	Industrials, telecom services
Margaret Patel, Pioneer Investments	S&P up 10%	Industrials, basic materials, utilities, health care
Ed Keon, Prudential Equity Group	S&P 1630	Technology, telecom services, financials
Jeffrey Knight, Putnam	S&P mid-to high single-digit returns	Large-cap stocks, Japanese stocks
Larry Puglia, T. Rowe Price	NA	Tech (wireless, handheld, multimedia), biotech (Genentech, Glead Sciences, Amgen, Celgene), acquisitive mega-caps (GE, Procter & Gamble), financials (intermediaries & asset manangers like UBS and State Street), global manufacturers (GE, Danaher)
Richard Bernstein, Merrill Lynch	S&P 1570	Japanese stocks, stocks that benefit from emerging market consumers, large-cap U.S. exporters, companies with revenues from the vaccine business
Rod Smyth, Wachovia Securities	S&P range for year 1330-1600, year-end 1550	Energy, small-cap stocks, emerging market stocks, large-cap international stocks
Henry McVey, Morgan Stanley	S&P 1525	Energy, brokers, tobacco, tower companies, aerospace/defense
Source: Strategists Reports