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By John Heinzl
The Globe and Mail
Report on Business
Tuesday, December 6, 2005
What do the Toronto Raptors and the Toronto Stock Exchange have in common?
They're both undefeated in December.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “They're the lotto for money managers. If someone is close, they score some brownie points.”
After bumping off Atlanta on Friday and New Jersey on Saturday, the Raptors improved their won-loss record all the way to 3-15. And while the S&P/TSX has been having a gangbuster season by comparison -- up 19 per cent through yesterday -- there have been concerns that the momentum may peter out.
Well, so far, December has been nothing but net for the S&P/TSX.
Yesterday, it scored its third straight advance, gaining 3.54 points to finish at 11,008.78, as energy stocks benefited from a fresh rise in the price of oil amid forecasts of colder temperatures.
Polish up your crystal ball
Where's the market going in 2006?
We don't know what stocks will do next week, let alone next year. But a few folks on Wall and Bay streets are apparently possessed of Kreskin-like clairvoyance, judging by the small mountain of wild guesses, er, informed predictions that land on our desk every year about this time.
We've noticed something about these prognostications: They're almost all bullish. Some -- such as Prudential Equity Group LLC's call that the S&P 500 will soar 24 per cent by the end of next year -- are sporting horns a mile long.
A cynic might suggest that such outrageous calls are nothing more than marketing tools that brokerage houses use to attract clients.
"Wall Street is designed to sell you stocks. If I was trying to sell you stocks all the time, I think I'd be bullish, too," says Adrian Mastracci, president of KCM Wealth Management Inc., a fee-only investment counsel based in Vancouver.
Another reason brokerage strategists issue predictions for the year ahead is that, if they're in the ballpark, they can brag about it and maybe even get a juicy raise.
"They're the lotto for money managers. If someone is close, they score some brownie points. But are they terribly relevant? No," Mr. Mastracci says.
Bearing all of that in mind, here is a sample of predictions for U.S. and Canadian markets. Take them with a shaker of salt.
Abby Joseph Cohen, chief investment strategist and managing director of Goldman Sachs Group Inc.: Sees the Standard & Poor's 500-stock index rising to 1,400 by the end of 2006, up 11 per cent from yesterday's close of 1,262.09. She is bullish on information technology and industrial companies, which stand to benefit as the economy continues to expand, but less keen on interest-sensitive stocks.
Edward Keon, senior vice-president and director of quantitative research at Prudential Equity Group: Sees the S&P 500 leaping to 1,560 by the end of next year, making him the most bullish strategist on Wall Street, according to Bloomberg.
Thomas McManus, chief investment strategist at Banc of America Securities LLC: Predicts the S&P 500 will rise 5.7 per cent to 1,335 within 12 months. "Improving global growth should help boost profits, but also raise the spectre of higher interest rates than expected," he said in a note yesterday.
Myles Zyblock, chief institutional strategist at RBC Dominion Securities Inc.: Sees the S&P/TSX rising just 2.6 per cent to 11,300 and the S&P 500 gaining 5.4 per cent to 1,330 by Nov. 30, 2006. Against a backdrop of rising interest rates, elevated energy costs and slowing economic and profit growth, he recommends defensive stocks with attractive dividend yields that have demonstrated the ability to deliver solid earnings in good times and bad.
Strategist George Vasic and analyst Garry Cooper of UBS Securities Canada Inc.: Have a 12-month target of 11,500 for the S&P/TSX, up 4.5 per cent from yesterday's close. Despite slowing earnings growth and rising bond yields, the market stands to benefit from the enhanced dividend tax credit, which will "not only blunt the impact of rising interest rates on dividend-paying stocks, but also encourage firms to initiate or raise payouts."
As suspicious as he is of such predictions, even Mr. Mastracci has been known to play the year-end guessing game, strictly for "fun". His call for the S&P/TSX next year: 11,500. "Am I going to be right? I have no idea. Is it going to make a lot of difference to me next year on Dec. 31 when somebody calls me up and says, 'Adrian, you're off the mark.' No, it's not," he says.
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