Bulls by the dozen

Stock Strategists Raise Alarms With Call for Rally (Update2)By Daniel Hauck

Strategists at 12 of the biggest Wall Street firms agree that U.S. stocks will rally next year. The last year that happened was for 2001, when the Standard & Poor's 500 Index dropped 13 percent. The last time Wall Street unanimously predicted an advance for the S&P 500, in 2001, preceded a 33 percent slump over the next two years.

Merrill Lynch & Co.'s Richard Bernstein and Bear Stearns & Co.'s Francois Trahan, two of the most bearish forecasters in the current four-year rally, both estimate the S&P 500 will surge to a record next year.

The unanimous view among the strategists tracked by Bloomberg that have made 2007 forecasts is just one signal of growing complacency about the market. An option-based index of investor concern dropped to a 13-year low last week, when the S&P 500 rose to its highest since November 2000. A survey of newsletter writers showed the least pessimism this year.

Strategist Tobias Levkovich of Citigroup Investment Research raised his 2007 forecast for the S&P 500 to 1600 last week, while Jason Trennert of Strategas Research Partners LLC did the same today. Prudential Equity Group LLC's Ed Keon, who had been tied with them, today increased his estimate to 1630, becoming Wall Street's most bullish forecaster.

The average estimate of the 12 strategists is 1539, above the index's record of 1527.46 on March 24, 2000. The projection amounts to a 7.8 percent advance from last week's close, in line with their forecast of an 8.2 percent increase in 2006.

This year, the index has risen 14 percent. The index's gain this year may exceed the average forecast of strategists for the third time in four years. They predicted a 16 percent climb in 2003, when the S&P 500 rallied 26 percent. They foresaw gains of about 3 percent in 2004, when the gauge added 9 percent, and last year, when the estimate was on target.

"Strategists have been a little bit too conservative," said Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut.

Option investors may share the strategists' optimism. The Chicago Board Options Exchange's SPX Volatility Index, or VIX, slid last week to 9.39, a level not seen since December 1993.

They can't all be wrong?