BULLS & BEARS: After a disappointing 2005, get ready for ‘bang-up year’

Exactly one year ago in this column, I predicted what 2005 would bring for the stock market and guesstimated a “bang-up year with double-digit gains.”

I came up with the projection based on the fact that most market strategists weren’t too optimistic and, as a group, usually have been wrong.

I also threw in that mutual fund money was flowing into foreign funds instead of domestic funds and that mutual fund investors usually pile into funds at the wrong time.

Last, I figured that since corporations were committing billions to buy back their own stock and they were putting their money where their mouth was, that was a strong sign as well.

So much for short-term predictions. As I write this, U.S. markets have earned single-digit returns and certainly have not had a bang-up year.

On Feb. 2, I prognosticated that the S&P 500 index would increase in value 60 percent to 100 percent by the end of 2009. I still feel pretty good about this one.

The worst post-war decade for stocks was the 1970s, when the S&P 500 earned an average of 5.8 percent annually, about half the market’s historical average.

If you had deposited $100,000 on Jan. 1, 1970, reinvested dividends, and cashed out on the last day of 1979, you would have walked away with $176,000.

Today, we are a few days shy of completing the sixth year of this decade.

If you had deposited $100,000 on Jan. 1, 2000, reinvested dividends, and looked at your balance today, you would have a grand total of $95,000.

To just match the lame 1970s, the stock market returns the next four years would have to top 16 percent annually.

That would equate to an S&P 500 index at 2,150, or 70 percent higher than today’s price.

OK, maybe we won’t do as well as the 1970s. Even to do half as well, the index would need to go up 45 percent in four years.

One of my favorite stock market gurus is a warhorse named Don Hays in Nashville, Tenn. Hays has been in the investment business almost four decades, and I have been reading his work the last two.

In 1981, when the Dow Jones industrials couldn’t crack 1000, Hays was a lone bull and explained why the Dow would go to 5,600 by 1996. I’m sure most people thought he was a crackpot and scoffed at the thought of a nearly sixfold gain in 15 years.

In June 1995, the Dow hit 5,600 and vindicated him.

Hays is more excited today than he ever has been about the next few years for the market. In his Dec. 12 market letter, he laid out why the S&P 500 will cross 2,600 by 2008.

And you thought I was nuts a few paragraphs ago when I said a 70-percent move in four years was in the bag. Hays is looking for 100 percent in three years.

You can read his work straight from the horse’s mouth at haysmarketfocus.com.

A whopper move putting the Dow at 20,000 in a few years sounds nice. Maybe outlandish and crackpot, but nice.

And how about next year? I’ll go with “a bang-up year with double digit gains.”