Dodging the Potholes

摘要

The road ahead for stocks seems benign but is chock-full of potholes. On the positive side is the low 15% tax on both dividends and capital gains introduced during George Bush's first term. Due to expire in 2009, the new rate stands a reasonable chance of being made permanent. Value stocks, which have outdistanced the S&P 500 in each of the past five years, should therefore continue their superiority, since they tend to pay high dividends. Next year the S&P 500 Index will see a 10% gain in earnings, say the analysts. This is a "bottom-up" estimate—meaning it was constructed from forecasts for each of the component companies. Chances are these estimates will prove high. If the gain comes in at only 5%, you're going to see stocks climb only 5% next year, absent an expansion in price/earnings multiples. Don't count on any P/E expansion. Multiples are already high by historical standards.