Money managers with hundreds of billions of dollars at stake say the major US stock indexes will gain only 7 to 8 per cent next year, after three straight years of 20 and 30 per cent gains for the benchmark Standard & Poor's 500 Index. Even the boldest predict returns of no more than 12 per cent.
Some predict losses of up to 15 per ent for the overall market. Prudential Securities analyst Ralph Acampora said three-quarters of the companies listed on the New York stock exchange will see their shares fall 20 per cent in the coming year.
History backs up conservative forecasters. This century, the Dow Jones Industrial Average, another standard indicator, has never risen more than 10 per cent in four consecutive years, and it has already done that for three.
"We're continuing in the bull market, but it's not the bull market we knew,'' said Raymond Mason, chairman and chief executive of Legg Mason in Baltimore, which oversees $54bn (pounds 31bn) of investments.
The steady-growth, low-inflation economy that drove the market for three years is still with us, but investors won't bet that the good times will last into a fourth year - not with Asia teetering on the financial brink and US earnings expected to increase less quickly.
"The market is going to have to adjust to slower profit growth," said Thomas Madden, chief investment officer at Federated Investors in Pittsburgh, which oversees $135bn in assets.
If the market does slow down, the best-performing money managers may be those who concentrate on a few stock picks, rather than trying to mimic broader stock indexes.
Frederick Taylor, chief investment officer of US Trust Co, which oversees $58bn in investments, says his favourite stocks in this environment include Exxon Corp, because of its cost-cutting, and Michigan-based Lear Corp, the world's largest maker of vehicle seats, which is taking advantage of a growing car market outside the US by buying auto seat makers abroad.
Philip Morris will be a winner in 1998, says Robert Sanborn, who oversees more than $6bn at the Oakmark Fund in Chicago. The stock returned 19 per cent in the past year, below the S&P 500's gain, while investors awaited congressional approval of a $368.5bn settlement of health-related tobacco litigation. The settlement would be paid for by raising cigarette prices which are unlikely to significantly affect sales, Mr Sanborn said.
William H Miller III, president of Legg Mason Fund Advisor, which manages $6.5bn in stocks, said he may buy "disasters" such as Oracle, which is down about 23 per cent for the year, and Oxford Health Plans, down as much as 83 per cent. "We think these are very fruitful places to look,'' he said.
Merrill Lynch, the largest US securities firm in terms of the number of brokers, recommends airline, cable TV and insurance stocks. Those companies, which borrow a lot of money, should benefit from low interest rates.
Richard McCabe, Merrill's chief market analyst, said that the market could reach new record highs in January and February next year, then fall as much as 25 per cent. A new three-year bull market cycle will start in late 1998 or 1999, he said.
Even the optimistic Abby Joseph Cohen, co-head of the investment policy committee at Goldman Sachs, lowered her outlook from "extremely bullish" a year ago to "just bullish". In the early 1990s, Ms Cohen said, stocks were 30 to 40 per cent undervalued. Now, "much of that valuation gap has closed". A strong underlying economy should keep stock prices rising along with profits in 1998, with the Dow Jones industrials rising 9 per cent and the S&P 500 up 11 per cent, she said.
Ms Cohen's predictions have been on the mark, but she knows she should watch her back. Recently, she was introduced as "The Joan of Arc of Wall Street". In reply, she said: "For Joan of Arc, it didn't end so well."