StockWatch

Upbeat for 2010

By Mark Hulbert,
Editor of the Hulbert Financial Digest, a service of MarketWatch.com

I normally don't put too much weight on the year-ahead forecasts that investment advisors circulate around this time every year.

But, I make an exception when it comes to the newsletters on the Hulbert Financial Digest's Newsletter Honor Roll for 2010. Making it onto that Honor Roll requires jumping over a number of demanding hurdles; merely beating the market won't do. Instead, to make it onto the Honor Roll, a newsletter had to have above-average performance in both up and down markets.

Only approximately 12 percent of the newsletters monitored by the Hulbert Financial Digest were able to jump over these hurdles.

Another reason to pay attention to what the Honor Roll newsletters are saying: The services that have made past years' Honor Rolls have proceeded, on average, to outperform those that failed to make the grade.

Nine newsletters made it onto the 2010 Newsletter Honor Roll, but I’ve described below just the five that engage in market timing. The other four of the nine that did make the Honor Roll focus entirely on stock or mutual fund selection -- they are Investor Advisory Service, NoLoad FundX, Roger Conrad's Utility Forecaster and Zacks Elite.

Bob Brinker's Marketimer -- Brinker, in his December issue, wrote, "Based on our earnings estimate for next year and our fair value price / earnings ratio of 16 to 17 times operating earnings, we estimate upside potential for the S&P 500 index (TICKER:SPX) into next year in the 1170 to 1240 range." That upside potential represents a gain from current levels of between 6 and 13 percent; his model portfolios are fully invested.

The Buyback Letter -- Editor David Fried does not offer a specific prediction of how high the market might go in 2010. But, he is bullish -- at least for now -- recommending that clients invest 100 percent of any money allocated to equities that is otherwise sitting in cash.

Cabot Market Letter -- Editor Michael Cintolo is bullish. In his mid-December issue, he wrote, "The charts are bullish; the most bullish thing a stock can do is go up, and the majority are doing just that." Because of anticipated year-end cross currents, however, Cintolo is keeping 30 percent of his newsletter's model portfolio in cash.

No-Load Fund Analyst -- Editor Stephen Savage thinks that, while U.S. equities are likely to produce a positive return over the next five years, that return is also likely to be below the long-term historical average. He, therefore, is underweighting U.S. equities: Relative to an 80 percent target weighting in his Equity Model Portfolio, for example, he is currently recommending that clients have 63 percent allocated to U.S. equities.

Sound Advice -- Three-fourths of the securities in editor Gray Cardiff's model portfolio are in the U.S. equity category. He recently acknowledged the stock market's choppiness but disagreed with those who interpret that choppiness as the end of the bull market that began last March. He foresees nothing worse than "a few so-so days".

The bottom line? By my reading, four of these five newsletters are bullish, with just one even moderately bearish. The average recommended exposure to the domestic equity market among these five is 82 percent.

To put this in perspective, consider that the comparable average one year ago, among the newsletters that made last year's Honor Roll, was 63 percent. So, this year's Honor Roll inductees are, on balance, more bullish than was the case at the end of 2008.

Let's hope they're right. The stock market (as judged by the S&P 500) ended 2009 more than 20 percent higher than where it stood at the beginning of the year.