Stocks Will Be 10% Higher In Six Months

Mark Hulbert MarketWatch December 16, 2011

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Dec. 16, 2011, 1:22 a.m. EST

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) "” "?Tis the season for ... year-ahead stock market forecasts!

I know, I know "” such forecasts don't usually come to mind when we think about the holiday season. But they do for me: That's because, many of the nearly 200 advisers I monitor, after spending the other 11½ months of the calendar resisting the urge to make year-ahead forecasts, can't help doing so in the latter half of December.

Normally, of course, I don't pay much attention to the practice. That's because, whenever I look back at similar forecasts from prior years, I am reminded of Warren Buffett's classic line that the primary purpose of stock market prognosticators is to make fortune tellers look good.

It's the time of the year when stock pickers and investment banks roll out their predictions. MarketWatch's Mark Hulbert says one analyst has a particularly strong track record: Sam Eisenstadt, an investment strategist who's bullish on stocks next year.

But I am going to make an exception for the forecasts made by Sam Eisenstadt, the former research director at Value Line, Inc.

Prior to his retirement in late 2009, Eisenstadt had spent 63 years at that firm. At the time of his retirement, its flagship publication, the Value Line Investment Survey, was in first place for risk-adjusted performance over the three decades the Hulbert Financial Digest had been tracking advisory performance.

Eisenstadt in retirement continues to update and refine a complex econometric model that forecasts where the market will be in six months' time. The inputs to his model are monthly readings of numerous economic and financial variables over the last six decades "” back to 1952, in fact.

I've reported in these pages before on the forecasts made by Eisenstadt's model and, though by no means have they always been on target, they have been good enough to justify our paying attention to what his model is forecasting for 2012.

/quotes/zigman/627449 DJIA 11,841.79, -27.02, -0.23%

For example, in December 2009, Eisenstadt forecasted a 20% return for calendar 2010. The Wilshire 5000 actually came remarkably close, gaining 17.2% for the year, after dividends. ( Read Eisenstadt's column for MarketWatch in December 2009. )

One year later, in December 2010, Eisenstadt's model was forecasting a double-digit gain for the market in the first half of this year, which translated into the S&P 500 index /quotes/zigman/3870025 SPX +0.05% rising to the 1,360 area and the Dow Jones Industrial Average /quotes/zigman/627449 DJIA -0.23% to around 13,000. ( Read my Dec. 2, 2010, column about Eisenstadt's prediction. )

Again, this has to be graded as remarkably accurate. At the bull market high in late April, the S&P 500 was trading at 1,371, slightly above his forecast from five months earlier, and the Dow was at 12,876, slightly below.

In contrast, Eisenstadt's model for the latter half of this year was way too bullish. Mid-year, for example, it was forecasting a 5.7% return through the end of the year. In fact, of course, the market currently sits about 8% below its mid-year level.

Though this recent failure is discouraging, it is not in itself a reason to give up on the model. No model is perfect, after all. But Eisenstadt reports that his model's track record, warts and all, has been statistically quite significant.

What is Eisenstadt's model saying currently? He tells me that it is forecasting a 10% return for the next six months, which translates into an S&P 500 level around 1,340 and a Dow level around 13,000.

Eisenstadt furthermore told me that, based on the trend of some of the inputs to his model, he suspects that stock market strength will fade as the year continues. He said he wouldn't be surprised if "the early months of 2012 will be stronger than the later ones."

Click here to learn more about the Hulbert Financial Digest.

/quotes/zigman/3870025 Add SPX to portfolio SPX S&P 500 Index 1,216.40 +0.65 +0.05% Volume: 715.00M Dec. 16, 2011 2:32p var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); /quotes/zigman/627449 Add DJIA to portfolio DJIA Dow Jones Industrial Average 11,841.79 -27.02 -0.23% Volume: 222.87M Dec. 16, 2011 2:32p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse

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Click here to learn more about the Hulbert Financial Digest.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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