What Were They Thinking? Or Were They Thinking at All?

GuruVision: Land of the Lost

SAN FRANCISCO -- Fears of more harrowing losses were assuaged today, as the Dow Jones Industrial Average rose 0.5%, the S&P 500 gained 0.7%, and the Nasdaq Composite climbed 1.1%. But hopes for a sharp rebound after last week's losses were also stymied.

The day's action pretty much sums up the equity market's experience for much of the year. Major averages have largely avoided last year's big losses, but their performance thus far in 2001 has also contradicted the high hopes many strategists (and investors) had at the end of 2000.

Just past the midpoint of the year, I figured it was time to check back and see just how high those hopes were. Looking at some of the forecasts, one wonders what some of these erstwhile gurus were (and are) smoking.

GuruVision: Midyear Update
Guru	Year-end 2000 Recommended Allocation	Current Recommended Allocation	Targets for year-end 2001 at end of 2000	Current Year- end Targets
Thomas McManus, Banc of America	60% stocks, 35% bonds, 5% cash	60% stocks, 35% bonds, 5% cash	*S&P: 1525	*S&P: 1425 *DJIA:11,500 *Comp:3000
Elizabeth MacKay, Bear Stearns	65% stocks, 30% bonds, 5% cash	65% stocks, 30% bonds, 5% cash	NA	NA
Tom Galvin, Credit Suisse First Boston	90% stocks, 0% bonds, 10% cash.	90% stocks, 0% bonds, 10% cash.	S&P: 1600 Comp: 4000	S&P: 1450 DJIA: 12,000 Comp: 2600
Abby Cohen, Goldman Sachs	65% stocks, 27% bonds, 5% cash, 3% commodities	70% stocks, 27% bonds, 0% cash, 3% commodities	S&P: 1650 DJIA: 13,000	S&P: 1550 DJIA: 12,500
Jeffrey Applegate, Lehman Brothers	80% stocks, 20% bonds, 0% cash	80% stocks, 20% bonds, 0% cash	S&P: 1675	S&P: 1450 DJIA: 12,250
Christine Callies, Merrill Lynch	65% stocks, 30% bonds, 5% cash	70% stocks, 25% bonds, 5% cash	S&P: 1720	S&P: 1570
Peter Canelo, Morgan Stanley	80% stocks, 20% bonds, 0% cash	80% stocks, 20% bonds, 0% cash	S&P: 1600	S&P: 1425 DJIA: 12,000 Comp: 2750
Greg Smith, Prudential Securities	65% stocks, 0% bonds, 35% cash	50% stocks, 30% bonds, 5% cash, 15% real estate	N/A	S&P 1450
John Manley/Tobias Levkovich, Salomon Smith Barney	65% stocks, 30% bonds, 5% cash	70% stocks, 25% bonds, 5% cash	N/A	S&P: 1400 DJIA: 11,400
Ed Kerschner, UBS Warburg	62% stocks, 20% bonds, 18% cash	73% stocks, 22% bonds, 5% cash	S&P: 1715 DJIA: 13,900	S&P: 1715
Al Goldman/Stuart Freeman/Mark Keller, A.G. Edwards	70% stocks, 30% bonds, 0% cash	70% stocks, 30% bonds, 0% cash	Comp: 3800	S&P: 1450 DJIA: 12,500 Comp: 2600
*Rolling 12-month target Source: Dow Jones, Reuters, strategists' reports.

Please don't confuse the table above with our quarterly "Accountability Report Card," which tracks how picks made in this column have fared (and is due for updating). The above seeks to put together a scorecard of the strategists at the major Wall Street firms, who may or may not be regular sources for this column. Certainly there are other strategists who deserve to be on the list and some that are on who maybe shouldn't be. But because of the nature of the exercise, I was forced to rely mainly on the wire services' definition of "major" firms.

In addition to the calendar, the table was inspired by the many emailers who wondered how Alan Skrainka, chief market strategist at Edward Jones, could say on Friday that "caution is in order" and yet still recommend 70% exposure to equities.

Many readers thought 70% was too much given Skrainka's outlook and I wanted to see how he compared with other strategists. As it turns out, 70% equities is right about the average for recommended equity allocation.

But given the average strategists' year-end S&P target is 1488, or 24% above today's close, you'd expect the average recommended equity weighting to be much higher.

To that point, at least the recommended allocations of Thomas Galvin, Jeffrey Applegate and Peter Canelo are consistent with their bullish year-end targets. That they're recommending clients put money where the gurus' mouths are may be the only "good" thing one can say about the trio of late, but it's something, at least.

Conversely, one wonders why forecasters such as Christine Callies and Ed Kerschner aren't recommending larger exposure to equities given their optimistic year-end targets. Both were traveling and unavailable for comment, although a spokeswoman at UBS said Kerschner is now focused on his year-end 2002 S&P target of 1835.

Hope springs eternal, I guess.

One to Watch

Previous GuruVisions

The Market May Be Getting Into an Upbeat Mood

Easy Money: Bullish Gurus Chant Fed, Fed, Fed!

Has This Market Built a Tolerance for Dr. Greenspan's Vaccine?

Joseph and the Amazing Semiconductor Dream Call

Mellow Market on the 'Cutting' Edge

The Market Still Hasn't Found What It's Looking For

Fed Action, Contrarian Indicators Signal Investor Opportunities

Optimistic Bears Belie Talk of Negativity

C'mon Greenspan, Do the Locomotion...

To Heck With Tech! Some Key Gurus Staying Away Short Term

Turning on Tech: Some Gurus Cast a Bearish Glance at Tech Stocks

Perfect Timing? Yes, You Can Time This Market, Says Guru

Market Bullheadedly Ignores Missed Earnings, Salivates for Rate Cut

This Rosencrans Has Thorns: Market Blooms, but Strategist Offers Warning

And the Winner Is...

Of course, equity weightings and year-end targets don't get into strategists' more important job of picking individual stocks, or even sectors. But from the big picture perspective, the skeptics have the upper hand so far this year.

Regular readers of this column should be familiar with the view of Thomas McManus and Douglas Cliggott, but it appears Greg Smith of Prudential Securities deserves closer inspection.

Smith was unavailable to answer questions, such as why he's got a bearish 50% recommended equities but a fairly bullish year-end S&P target of 1450. Or why he's bullish on real estate, a sector many observers expect to succumb to the overall economy's slowdown.

But in a report out today, Smith did provide some hints as to why he remains cautious on equities.

"Some may argue that this period is just the dark before the dawn [but] as we have said for some time, the chances of seeing any important economic turnaround is unlikely until this fall," he wrote. "Once we get through July and August, we have a chance that things could get better. In the meantime, I think investors should stay focused on defensive parts of the markets; particularly investments with a yield pickup."

Earnings preannouncements -- the latest coming after the bell from Corning (GLW Quote) -- suggest the consensus earnings expectations remain too high, the strategist added.

Smith also noted the growing evidence the "rest of the world was not immune to the slowdown in the U.S.," citing economic woes in Brazil, Turkey and Argentina, as well as growing evidence of weakness in Europe, particularly Germany.

Developments in the global economy also were not lost on Don Hays, of Hays Advisory Group in Nashville, Tenn. The various flare-ups "fit into the script almost exactly the way I see the evolution of the next few years into a very exciting productivity-led deflationary period," he wrote today.

Faithful readers of this column should be familiar with Hays' views (too familiar according to some observers).

Today, he reiterated near- to intermediate-term targets of 12,600 for the Dow and 2800 for the Nasdaq Composite. Hays' belief that a new bull market is under way, despite the market's recent struggles, is based largely on the fact major indices remain above the lows set in late March/early April.

The Dow remains 9.7% above its March 22 closing low, while the S&P is 8.7% above and the Comp 22.3% above respective closing lows set April 4.

"Can you believe the devastation in earnings that this market has withstood in the last few months and still has not made a lower low?" he wondered. "To tell the truth, I am sick of these 'testing' periods but my experience tells me to stay the course."

Read his lips, staying the course may have served Hays well in the past. But it hasn't done much for the gurus who've stuck with a bullish view since the beginning of the year, nor for investors who've followed their advice.