As debate rages about whether the market has bottomed, Standard & Poor's is casting its vote on the side of the bulls: "We think the Oct. 9 low of 776.76 in the S&P 500 is the low for this bear market," declares Sam Stovall, chief investment strategist at S&P, which, like BusinessWeek, is a unit of The McGraw-Hill Companies. The market won't skyrocket, he adds, "but the worst is over. We've reached bottom."
S&P's investment policy committee, peopled by chief economist David Wyss, director of equity research Kenneth Shea, index chief David Blitzer, chief technician Mark Arbeter, and Stovall, make the calls. They meet each week to analyze where the market is and where it's headed. "Right now, we're cautiously optimistic: The market will wait for earnings to catch up before it makes a major move upward," argues Stovall, who expects the S&P 500-stock index to rise to 1,155 in the summer of 2003--a 35% leap from 857, where it stands now. That's in line with the S&P's historic performance--from 1949 through 1990--when the index typically posted a 33% gain nine months after the end of each bear market. With S&P forecasting gross domestic product growth of 2.7% in 2002 and 3.5% in 2003, it sees corporate earnings rising 20% in 2002 and in 2003.
So it's wise, says Stovall, to invest in sectors that do well in recoveries: consumer durables, energy, and materials such as paper, chemicals, and metals. In consumer goods, S&P's top picks include homebuilder Hovnanian Enterprises (HOV) and Wal-Mart Stores (WMT); in energy, oil explorer Apache (APA) and driller Nabors Industries (NBR); and in chemicals, Praxair (PX) and fertilizer producer IMC Global (IGL). By Gene G. Marcial