The Experts Make Their Picks For 1991

January 06, 1991

The following is a sampling of some of the market prognostications for 1991 being offered by leading economists and analysts, as compiled by Thomas Easton and Chau Lam of The Sun's New York bureau.

Dec. 10, 1990

William M. LeFerve

Senior Vice President, Market Strategist

Advest, Inc.

Looking out into 1991, any forecast requires a series of assumptions. Here are ours: no shooting war; rather a negotiated settlement; the present decline in crude oil prices (from $41 to $26) will continue to the low 20, thereby easing and shortening the recession that supposedly is upon us; and the Federal Reserve Board will continue to make money and credit more readily available.

Despite the appearance of a domestic recession, because so many of our major corporations are multi-national and because Europe's economy generally continues to be upbeat, there may not be much of an erosion in corporate earnings in 1991. The Dow's record earnings are $229.75 for the four quarters through March 1989. The latest we have is June 1990's $207.78. Our guess is the Dow in full year 1991 will earn no less than $200. The Dow's dividend is now $101.40 and we think will remain above $100.

Using those two numbers for 1991, $200 earnings and $100 dividend, it is possible to make some projections. The Dow's current price earnings ratio (p/e) is 12.5 times and its dividend yield is 3.9 percent. We think the p/e next year will range between about 12x and 17x or 18x, the higher numbers coming only if both the Middle East and the recession "go away." As for the yield, we think it will range between 4.2 percent and 2.8 percent, again the lower yield only with the absence of Saddam/Kuwait and recession.

Putting those p/e and yield ranges together with our earnings and dividends estimates, our projection for the 1991 Dow is as follows: 2380 low (something like a 12 p/e and a 4.2 percent yield) and a rather euphoric high of 3571 (with a near 18 p/e and a 2.8 percent yield).

Republican third years (of which 1991 is one) tend to be up years, averaging 17.4 percent since the end of World War II. Such an average gain next year, on, say, 2600 on the Dow, would be 452 points or 3052 on Dec. 31, 1991.

Third years tend to be the best of the Presidential Four because it usually takes a good economy leading onto election year to get re-elected. You'll notice Jimmy Carter had an anemic 4.2 percent third year and lost his lease on the White House the next year. George Herbert Walker Bush does not want to be the first one-term Republican president since Herbert Hoover. Bush also knows Wall Street: His father was a partner in Brown Brothers Harriman. Sportsman that our president is, we can just hear him say about 1991, both in Washington and in Wall Street: "Let the game begin!"

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