The Year of the Prescient Bear

A year ago, the market strategists in BusinessWeek's Fearless Forecast predicted modest-to-large gains for the major indexes. Boy, were they wrong. Instead, the group's lone bear, George W. Jacobsen Jr. of New York-based Trevor Stewart Burton & Jacobsen, came out on top with a forecast that looked toward the bottom. Jacobsen was the only one to predict that all three major indexes--the Dow Jones industrial average, the Standard & Poor's 500-stock index, and the Nasdaq Composite--would lose ground in 2001.

Not that he hit the numbers dead on. Jacobsen's 8100 Dow estimate, which looked pretty good in late September, was 19% under where the index finished on Dec. 7, the day BusinessWeek called the winner. However, Jacobsen came the closest to pegging the other two major benchmarks, missing the S&P by 13.6% and the Nasdaq by 11%. When his scores on the three indexes were averaged, he was off 14.7%.

The key to his forecasts? A recognition that corporate profits would be squeezed. Jacobsen expected profits to fall 10% in 2001, as low inflation held prices in check. While he underestimated the year's actual profit shortfall by about 6 percentage points, Jacobsen came a lot closer than his peers, who were looking for profit growth of 7.5%.

Charlie Crane of New York-based Victory SBSF Capital Management came closest to pegging the Dow, overestimating its Dec. 7 finish by 7%. And Douglas Cliggott, chief U.S. equity strategist at J.P. Morgan Chase & Co., made a strong showing. When his forecasts on all three indexes were combined, he overshot by an average of 18%, second overall.

Jacobsen--last year's most bearish forecaster and this year's second-most--remains pessimistic. While many pros are predicting an earnings rebound, Jacobsen thinks profits will continue to languish as strapped corporations defer expenditures. "I don't see an engine for growth. I don't see consumers or businesses with pent-up demand," he says. That's why Jacobsen favors companies that sell consumer staples, such as food and health-care products, which tend to perform well in good times and bad.

Jacobsen wouldn't be surprised to see big sell-offs on disappointing earnings news next year. His forecast for the end of next year--8100 for the Dow, 1000 for the S&P, and 1800 for the Nasdaq--is unchanged from the one that garnered him top honors this year. Still, this strategist, who turned cautious on stocks in 1997, looks for bargains to emerge during the year and for a modest recovery. Who knows? By this time next year, the longtime bear may turn bullish.

By Brian Hindo in New York

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