By Bremen Leak
If a runaway bull market got started tomorrow, Elaine Garzarelli would be the first to say: "I told you so." The president of Garzarelli Capital has been expecting a strong upswing for several years, and her prognosis shows it: of the 76 market strategists surveyed for BusinessWeek's 2006 stock market forecast, Garzarelli posted the most bullish prediction of all, 14,150 for the Dow Jones industrial average, 1635 for the Standard & Poor's 500, and 2900 for the NASDAQ Composite. Those represent respective gains of 32.1%, 31%, and 31.5%.
Of course, Garzarelli was similarly bullish this time last year. Soaring energy prices and continued interest-rate hikes by the Fed held the market back in 2005, Garzarelli says. She was calling for a yearend finish of 12,400 on the Dow and 1420 for the S&P 500 (but did not make a prediction for the NASDAQ).
Garzarelli remains optimistic for 2006 because, she says, the market is undervalued by about 30% -- and has been for over three years. With energy prices stabilizing and the end of rate hikes in sight, "the stock market will really roar," she says.
That may not fly with other prognosticators like UMB Bank's William Greiner, whose much lower prediction came closest to nailing the market in 2005 (See BW, 12/26/05, "Fearless Forecaster: The Sage Of Kansas City"). But since founding her New York company a decade ago, Garzarelli has followed her own mantra: Don't listen to anybody.
She developed a system of 14 indicators, using econometric models such as the economy, monetary policy, valuation, and sentiment, to predict the direction of the stock market. Her most famous call was turning bearish weeks before the 1987 crash. "I'm bullish when people are bearish," she says. "I tend to go against the crowd."
But the Pennsylvania native isn't all that unconventional. After studying economics and statistics at New York University, she earned a doctorate from Drexel University and put in long hours at Wall Street firms like Lehman Brothers (LEH ). She's a fan of Broadway shows, rock concerts, and "dinner parties with nonindustry people." Staying away from them, she says, helps her make unemotional decisions at work.
Garzarelli's vision of 2006 is clear: Financial stocks will boost the S&P to an all-time high, and increased productivity and lower labor costs will spur foreigners to invest in U.S. stocks. "Foreign stocks have done so much better," she says. "This is America's chance to catch up."
Leak is a New York-based correspondent for BusinessWeek