Another 20%-plus year? Fat chance. Try less than 9%.
Indeed, pension fund executives and others in the institutional investor community believe there is less than a 25% chance the S&P 500 will produce another 20%-plus return in 1998.
Respondents to a Pensions & Investments fax survey on average predict the stock market this year will return less than 9%.
Meanwhile, those surveyed estimate long-term Treasury bonds will be at 5.7%, both by June and the end of the year.
Respondents cited most often low interest rates and low inflation as positive factors for the market in 1998. Negative factors: fears of slower corporate earnings growth and the continuing Asian economic crisis.
John E. Thompson Jr., trust investment manager at Texas Utilities Co., Dallas, which has $1.7 billion in defined benefit pension assets, believes the stock market return "will be a lot more normal." He estimates 10%.
"There is a little bit of overconfidence in the market," he said.
Louis J. Fecile, vice president-employee benefits at V F Corp., Reading, Pa., which has $1.25 billion in defined benefit and defined contribution funds, predicts the Standard & Poor's 500 Stock index will return 17% for the year.
But he also believes there's a 50% chance the market could produce an unprecedented fourth straight 20% or more return.
Jeremy J. Siegel, professor of finance at the Wharton School, University of Pennsylvania, Philadelphia, is one of the outside experts interviewed on the market outlook. Said Mr. Siegel: "When you have an unprecedented event in the stock market - that is, last year was the third year of a 20% or more gain - you are reluctant to say it can't happen again."
But "my feeling is that it won't be a good year in the stock market. I think there will be a slowdown in the economy. That will affect the market. And what's going on in the Asian markets with their deflation - that could affect the market, too."
He predicts "a flat year at best."
Derek Sasveld, senior consultant at Ibbotson Associates Inc., Chicago, said Ibbotson believes 1998 will be "a pretty average year in the stock market," which would be 10.7% on a historic basis since 1926. "We may expect a little bit greater than that .. . . "
"We've had three straight years of 20% or more returns. But in other three-year periods, we've had even higher returns, although not every year in those three years was the return 20% or more. In the 1950s and early 1960s, we've had three-year periods when the return was even higher. There were periods of low inflation. Low inflation is good for the stock market.
"As long as inflation stays low and interest rates stay low, there should be a pretty good year" for stocks.
Seymour N. "Sy" Lotsoff, senior managing director at Lotsoff Capital Management, Chicago, predicts the stock market will have a -5% return for the year.
He cited as negative factors the continuing Asian financial crisis, slow European economic growth, and the maturation of U.S. economic expansion. His greatest fear is a trade war, touched off by protectionist demagoguery.
He sees the inflation rate for the year around 1%, possibly negative for most goods, while above 1% for services.
"Price declines or only small price rises will hurt profits very much," said Mr. Lotsoff, another poll respondent.
He thinks interest rates will be lower, seeing a 5.3% rate on long-term Treasury bonds at year-end. He thinks the Federal Reserve Board will lower the Fed funds rates.
Among survey respondents, forecasts for the market return for 1998 varied widely - from -15% to 26%. Only 10 respondents think the market will produce a negative return for the year. But nearly half believe the market will produce a double-digit positive return.
The fax poll took opinions last week from 148 respondents. The poll surveyed pension fund executives, portfolio managers and marketers at money management firms, consultants and a few endowment and foundation executives. Their views are fairly uniform on factors that could affect the stock market, whether good or bad, in the new year. (Respondents were asked to write in responses.)
The most cited positive factors:
83 respondents cited low interest rates;
53 cited low inflation;
32 cited growing corporate earnings;
15 cited continued growth in 401(k) and other savings entering the market.
13 cited a positive U.S. economy;
13 also cited restored stability in the Asian markets; and
13 also cited productivity or technology improvements.
In all, respondents cited 26 different positive factors, most getting only a one or two mentions.
The most cited negative factors for the market for 1998:
82 respondents cited slower growth in earnings;
51 cited the continuing economic crisis in Asia;
15 cited rising interest rates;
13 cited rising inflation;
12 cited deflation; and
10 cited a strengthened U.S. dollar.
In all, respondents cited 37 different negative factors; most of them received only one or two mentions.
Despite the fear of the Asian crisis spreading to the West, for 1997 that crisis evidently was a boon to the U.S. market, according to the poll.
On average, the respondents believe the market would have returned 29% last year had the Asian economic crisis not occurred, or less than the 33.36% actual return on the S&P 500.