Bank One economist expects gains in the stock market

A Bank One economist expects gains in the stock market the next two years.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
CANFIELD -- If investors listen closely, they can hear the hoof beat of the bull.
Stocks prices, pushed down for nearly three years by a bear market, should rise next year, said Anthony Chan, chief economist for Bank One Investment Advisors.
He expects moderate returns of between 5 percent and 7 percent next year and normal returns of between 8 percent and 10 percent in 2004.
"After a bear market comes a bull market. It always happens," Chan told about 100 bank clients and employees Friday at Tippecanoe Country Club.
Chan cautioned that investors will have to wait some time before they reap the 25 percent returns of the late 1990s, but he added that history shows all bear markets end with a surge.
The Standard & amp; Poor's 500, which tracks the stocks of the 500 largest companies, has gone up an average of 61 percent in the 24 months following the end of a bear market, Chan said.
He thinks the current bear market has run its course.
Going back to 1930, the average bear market lasts less than 18 months, but the current one is at 31 months. The average decline of the S & amp;P 500 in a bear market is 37 percent, but this downturn has produced a 45 percent loss.
"We have to be close to the bottom if we're not already there," he said.
Investors, however, need nerve to stay in the market after the losses of the last three years, he said.
Investing seems easy when the market is going up, he said. Investors can make the most money, however, when prices are down and other people are shying away, he said.
He said he isn't aware of any investment that pays more over the long run than the stock market. Since 1930, the average yearly return has been 8 percent, plus about 2 percent for dividends.
"You can only get this normal investment by being a long-term investor," he said.
An investor should have at least an eight-year outlook when putting money into stocks, he said.
"If you don't, you're taking a risk," he said.
Chan said some investors have been shaken lately by the large swings in the Dow Jones industrial average and other measures. Such volatility is normal during periods of recession or slow growth because investors aren't sure whether they should be buying or selling stocks, he said.
The best way to protect investments from such swings is diversification, he said.
Chan said the economy is slowly recovering from the recession, and he expects the National Bureau of Economic Research soon will declare that the recession has already ended.
Consumer confidence remains high, which is reflected in strong numbers for housing starts and car purchases, he said.
"I'm optimistic because all of you are optimistic," he said.
Consumer spending will slow some in the coming months, however, because statistics show that many consumers have borrowed too much and will be looking to pay down debt.
Still, recent growth in the gross domestic product indicates to him that a second recession is unlikely.
"No double dip is coming. Don't worry about that at all," he said.
shilling@vindy.com