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Cohen still a bull on stocks
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April 17, 2000: 2:00 p.m. ET
Wall Street guru unmoved by market volatility, optimist on growth
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NEW YORK (CNNfn) - Abby Joseph Cohen, one of Wall Street's most influential strategists, reassured investors Monday that they should not be put off by recent market volatility -- and should hold on to stocks because growth remains strong.
In a note to clients, the Goldman Sachs investment strategist left unchanged her targets for the S&P 500 and the Dow Jones industrial average, forecasting gains in the months ahead -- just one trading session after those indicators plummeted.
Cohen sees the S&P jumping to 1,755 by year-end, a 7.2 percent annual gain. The Dow is forecast to finish 2000 at 12,600, a 10 percent jump for the year. Her S&P target for spring 2001 is 1,625, up 20 percent from current levels.
In keeping her targets unchanged, Cohen said Wall Street's recent selloff had nothing to do with changing fundamentals, such as earnings, inflation and Federal Reserve policy, Cohen said.
Instead, she blamed the rout on "market factors," a reference to psychology and momentum.
Cohen's projected gains would pale to the performance of years' past. The Dow surged 25.2 percent in 1999, a record fifth year in a row that the blue-chip index posted a double-digit percentage gain. The S&P 500 rose 19.5 percent last year.
This time, analysts said the recent comments by Cohen (pictured left) had no market effect -- unlike four weeks ago, when her recommendation that investors decrease technology holdings roiled the markets.
Still, stocks rose Monday as investors decided whether or not to continue
the recent Wall Street slump.
Cohen's optimism is reinforced by expectations for strong first-quarter earnings. With less than a fifth of companies on the S&P 500 reporting, more than 70 percent have beaten expectations. Only 10 percent have reported profits below forecasts. First Call/Thomson Financial expects actual growth among S&P companies to come in around 22 percent compared to year-earlier figures.
"We expect 2001 to be yet another year of profit expansion, albeit at a slower pace," Cohen said.
(Click here for a comprehensive look at the day's earnings)
Inflation is expected to drift higher, but Cohen does not see "dramatic acceleration. Headline inflation data have been skewed by the surge in energy prices. This has already begun to abate," Cohen said.
And the Fed is expected to raise interest rates, but that has been factored into her equity market projections.
Finally, Cohen suggests investors may want to seek stocks cheapened by the rotation into technology issues. She sees opportunities in real estate and investment trusts and corporate bonds, whose yields have widened despite solid corporate earnings and cash flow.
Cohen wasn't the only analyst issuing reports Monday. Seeing opportunity following the recent sell-off, Thomas Galvin, chief equity analyst at Donaldson, Lufkin & Jenrette, upped the stock percentage in his firm's model portfolio to 90 percent stocks and 10 percent cash, eliminating the 15 percent in bonds.
"We continue to view most stocks (excluding dot-coms) as cheap, with an S&P 500 median (price-to-earnigns ratio) of roughly 15 times 2000 estimates," Galvin wrote.
While Galvin is cautious about dot.com stocks he sees more reward than risk in technology shares.
"Over the next 12 months, we believe the Nasdaq has 200 points of downside risk and 2000 points of upside potential, creating a ten-to one-ratio of reward to risk which makes this an opportune time to be aggressively buying stocks," he said. 
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