Forecast for 2003
Cliff Droke
It's time once again for our annual forecast for the year ahead. Last year's predictions (see Forecast 2002) were fairly accurate, although the market threw a few curveballs our
way (it always does). Where equities are concerned we suspect it's going to be extremely rocky terrain, and therefore very hard to predict this far in advance what exactly will transpire. It's probably going to be similar to 2001-2002, which is to say a significant rally or two, punctuated by at least two major declines along the way.
Using the S&P 500 index (SPX) as our basis, we make the following observations:
1. The 24-week cycle is due to bottom sometime during the first part of January. This cycle has been hanging over the market in recent weeks and has been largely responsible for the technical weakness. This descending cycle is likely to produce a further decline up until the expected 24-week bottom.
2. There is likely to be a fairly strong rally in the first quarter with the month of February being especially propitious.
3. Based on the dominant interim cycle (as distinguished from the 24-week cycle), the S&P will also be under considerable selling pressure early in the second quarter of the New Year.
4. Once again, the potential exists for another "October Massacre," i.e., a marked sell-off in equities in the fall of the year, based on the configuration of market cycles at that time.
Following are some more generalized forecasts for Year 2003:
5. On the international scene, the best performing stock markets to date have been in South American countries, including Argentina, Brazil, and Peru. This is where all the money is going, where equities are concerned, as insiders secretly flock to this emerging strength, and the charts show more upside potential for these countries in 2003, particularly for Peru.
6. Despite the best efforts of the Fed bankers and government officials, the U.S. economy will continue to erode in 2003, with the deterioration becoming more pronounced toward the end of the year. President Bush has made it clear he will turn his attention to the ailing domestic economy in 2003, but it will be to no avail. Home sales, construction spending, and new car sales-all mainstays of the economy in the recent past-will drastically slow down and cease to carry the economy through the developing slump.
7. Will any of the major banks fail in 2003 as some writers have suggested? Not likely. The charts of the big banks are actually strong enough to support a decent 2003 performance with some of them actually looking quite solid for the next few months ahead.
8. Among the major currencies of the world, the Swiss Franc and Euro will perform well overall in 2003, while the U.S. Dollar will continue to perform poorly.
9. Silver and copper, along with the stocks of companies who produce them, will perform well in 2003. Take a look at the long-term monthly charts of the major copper producers-such as Phelps Dodge-and you'll see that a solid long-term bottom has been established (in the form of a parabolic bowl) with prices just starting to climb the rim of the bowl. It should be noted that
copper is a war-time industry, so perhaps the copper sector is telling us that war is on the horizon sometime within the next year or so.
10. Gold and gold stocks will also perform well overall in 2003 as the bull market in precious metals continues to gain momentum. Gold stock mutual funds will once again be among the top performing funds for the year, just as they were in 2002.
Our reading of the charts and market cycles leads us to conclude that Year 2003 will probably see a split market-a classic trader's market-with some individual stocks and sectors performing well and others not so well. This should have the aggregate effect of a wide trading range, as we intimated above, with a couple of major rallies and declines along the way. We do not believe this year will witness a serious crash or major panic in the U.S. equities market-that will probably have to wait until Year 2004.
The third year of the decade is historically nondescript, and since the 12-year equities cycle bottomed this past fall it will undoubtedly relieve some of the enormous overhanging pressure from stocks from the past three years. The long-term bear market is still very much in force, however, so we must always be on the alert for the "growling menace."
Clif Droke
www.clifdroke.com
January 1, 2003
Clif Droke is the editor of the weekly Bear Market Report, a combined forecast and analysis of U.S. stocks and indices and international precious metals stocks, and is the author of numerous books on finance and investing, including most recently "How to Trade Gold & Gold Stocks." Visit his web site for free samples of his analysis at www.clifdroke.com
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