While most investors are still trying to figure this year out, Merrill Lynch & Co. Inc. is already throwing in the towel on 2005 and it is looking ahead to next year.
Although "2005 may be a writeoff," said David Rosenberg, first vice-president and chief North American economist for Merrill Lynch, "we are positive on 2006."
Mr. Rosenberg sums up this year somewhat gloomily.
It's not good to have the rate-setting arm of the U.S. Federal Reserve Board hiking interest rates at the same time as profit growth begins to slow. It is also typical to have a weak stock market the year after a Republican election victory. As a result, 2005 "looks like a writeoff," he said.
Merrill Lynch's view is also supported by stock market lore, which holds that as goes January, so goes the year.
But, Kent Engelke, the senior vice-president and capital markets strategist for Anderson & Strudwick, Inc. of Richmond, Va., is not quite ready to give up on 2005, which is not even a month old.
"The last time that both the Nasdaq and the Dow started the year with three weekly declines was 1982. That year the Dow and the Nasdaq posted returns of 27.1 per cent and 18.7 per cent, respectively, he said.
Mr. Engelke does not expect that to happen this year, but he does expect more normal rates of return for the Dow industrials.
The average increase for the Dow for the first year of a presidency is 2.9 per cent.
And what does Mr. Rosenberg like about 2006? The prospect of lower oil prices, the end of rate tightening and perhaps the beginning of new cuts, significantly lower price-earnings multiples as a result of an anticipated steep stock market drop, benefits from mergers and acquisitions and a modest increase in gross domestic product.
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