Area investment advisers cautiously optimistic
Most expect stocks to rebound in late ’09
The brutal stock market has battered local investment advisers, but their innate optimism remains intact.
With a devastating year drawing to a close, better days could be just around the corner for investors, a group of local investment advisers predicts.
With the federal government pumping money in to the economy at an unprecedented rate to try to end the recession and revive the banking and auto industries, the advisers are confident that the stimulus program will be the strong medicine that the stock market needs to nurse it back to health.
If they’re right — and our panel expected solid gains from the stock market this year, never seeing the financial meltdown coming — then the stock market could be in line for a big rebound in 2009.
“The federal government is throwing money at the problem, so at the very least, by year end we should start to see these stimulus programs gaining some traction,” says Gerald T. Cole, the managing partner at Arbor Capital Management, an Amherst money management firm.
Most of the advisers think the first half of 2009 will be rocky, with painful job cuts, weak profits and a litany of other bad news coming out as companies cut back and the recession hits the economy hard.
But during the second half, most think the tide will begin to turn. While they don’t expect the economy to rebound vigorously, they believe the worst will be over by then.
And because the stock market tends to forecast economic activity six months in advance, investors could start jumping back into the market during the summer and fall, driving share prices sharply higher, says Lawrence V. Whistler, chief investment officer at Nottingham Advisors, an Amherst money management firm.
If their crystal balls have been tuned up properly after badly missing the 2008 crash, then the stock market could be looking at gains of 19 percent for the Dow Jones industrial average and 21 percent for the Nasdaq Composite Index.
Still, “I think things are going to get a lot worse before they get better,” says Rosemary A. Ligotti, senior vice president at Cantella & Co. in Amherst and the least bullish of group. “I’m really more pessimistic than I’ve ever been.”
Ligotti is worried about deflation sweeping through the economy with potentially devastating effects and further foreclosures as adjustable-rate loans reset at higher interest rates. She’s concerned about the auto industry and its long-term viability despite bailout loans from Washington.
How next year plays out in large part will hinge on how those problems are resolved, leaving a cloud of uncertainty hanging over the economy and the stock market. “It’s going to be event-driven next year,” says Ligotti, who expects the Dow to rise by 9 percent to 9,300 and the Nasdaq to rise by 11 percent to 1,700.
Even some of the bulls admit that we’re largely in uncharted waters, with the auto industry reeling, credit markets still incredibly tight and consumers saddled with debt at a time when their jobs are less secure than they’ve been in years.
“The environment that we’re in right now is totally where nobody has ever been before,” says Joseph Curatolo, the president of Georgetown Capital Group, a Williamsville money management firm.
Yet the power of the “unprecedented” economic stimulus program from Washington should finally start bringing investors off the sidelines, says James P. Julian, executive vice president at Robshaw & Julian Associates, an Amherst money management firm.
Julian thinks the first half of 2009 will be bleak for the U. S. economy, which could contract by 3 percent to 4 percent. But he expects the stimulus to start putting the economy back on track later in the year, which should give a boost to the stock market.
“What the Fed, Treasury and company are doing is historic in scope and it will succeed,” agrees Bruce Kaz, president of Courier Capital Corp., a Buffalo money management firm. “The only question left is how fast,” says Kaz, who expects the Dow to rise 17 percent and the Nasdaq to gain 22 percent.
David Elias, a partner at Alesco Advisors in Amherst, also sees the economy struggling throughout 2009, with unemployment reaching 8 percent to 9 percent. “We’re going to have to have the patience of Job here, because this deleveraging is going to take time,” says Elias, who predicts the Dow will rebound by 20 percent and the Nasdaq will jump by 25 percent.
Whistler agrees. “The companies that took on too much debt are the ones that are in trouble,” he says, forecasting a 20 percent jump by the Dow and a 22 percent gain by the Nasdaq.
The health of the auto industry is a huge wild card hanging over the market and the U. S. economy. “If there’s an auto debacle, unemployment could surpass 10 percent,” says Cole, who nevertheless believes the Dow is heading for a 17 percent gain and the Nasdaq is posed to surge 37 percent.
Tim Johnston, managing partner at Sandhill Investment Management in Buffalo, says the question is how much deeper the downturn will become.
“We already know that the bad news is coming. The other question is whether there is another big down-leg coming,” he says. “We know unemployment is going to 8.5 percent. The question is whether it’s going to 12 percent.”
Johnston also thinks the economy will start to recover in the second half of 2009, after a “horrible” first six months. Consequently, the expects the Dow to rebound by 12 percent next year and the Nasdaq to rise 16 percent.
“When the economy does recover, it’s going to be highly inflationary because there’s going to be so much money in the system” from the government’s efforts to stimulate the economy and the deep cuts in short-term interest rates, he says.
Curatolo, who expects a whopping 31 percent jump in the Dow and a nearly 12 percent rise by the Nasdaq, also sees the housing market beginning to recover next year, led by 30- year mortgage rates that he expects to drop below 5 percent.
“What’s going to turn the economy is the incredible amount of stimulus that’s been poured in,” Julian says.
When that happens, investors who have been scared to the sidelines and are licking their wounds from their portfolio’s steep losses, will start to jump back into the stocks. As a result, Julian thinks the Dow and Nasdaq will finish the year up 20 percent.
“When you start getting upward movement in the market, everyone will want to get back in,” he says.
But it won’t be easy to convince most investors that it’s safe to get back into the market.
“There are two asset classes now: things that are risky, which is all equities, and Treasuries,” says Anthony J. Ogorek, who runs Ogorek Wealth Management, an Amherst money management firm. “There’s still a lack of trust out there.”
Many of the local advisers see this as a good time to buy, if investors can get over their strong feelings of fear.
“It’s just a panic,” says Ogorek, who expects the Dow to jump over 25 percent and the Nasdaq to shoot up a bout 24 percent. “The equity prices do not reflect the underlying asset values.
“When people move out of the market when it’s collapsing, they’re in a psychologically safe place,” he says. “They’re going to need a pretty significant confirmation for them to get back in.” That confirmation, he says, likely won’t come until the credit markets loosen up and stock market is up 25 percent to 30 percent. At that point, investors will have missed out on a big part of the recovery.
“You need to be on the train once it leaves the station, because once it leaves, I think it’s going to be a dynamic move,” says Elias.
With the flight to safety by investors driving yields on Treasuries to record lows, Johnston thinks the much higher yields on 5-to 10-year investment grade corporate bonds are very attractive investments today. And with Treasury yields so low, Johnston thinks now is a great time to bet on those yields eventually rising by investing in short sales on Treasuries, which can be done through exchange traded funds.
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