Despite strong earnings reports, an improving economy and low inflation, the lack of resolute buying is indicative of some doubt concerning the market’s direction and future.

Those looking for a helpful forecast from the experts can find plenty of opinions. Since you shouldn’t be without one of your own, especially if your retirement plan is invested in equities, I’ll pass along a few to consider. In a future column, I’ll also give you a couple of ideas for a “do-it-yourself” forecast.

To start, let’s throw out the extremes, like the mutual fund president who wrote a book during the tech boom forecasting the Dow would hit 100,000, or perennial bears such as Robert Prechtor, who has been calling for the death of all bulls since the 1980s. They both may be right—I’m just not sure it will happen in our lifetimes!

Back in the bear’s den, we have Marc Faber, a Hong Kong contrarian who tells us we don’t have a chance against China and a rising Asia. He thinks we are in for a long and dark winter of economic morass. According to a recent Forbes article by Rich Karlguard, Boston investment banker Jeremy Grantham sees our recent upward surge as “the greatest sucker rally in history,” based on his assumptions that the market is overpriced at its current P/E of 24 and will fall to its trend line of 16.

Warren Buffett, recently proclaimed the “Greatest Investor of All Time” on the cover of Fortune magazine, is looking for a do-nothing, sideways market for the next ten years, reminiscent of 1972–82. Buffett is one of the few money managers who lost money in 1999, but he has been right for the past three years.

On the other side of the fence, there are more than a few supply-side bulls, like Art Laffer, economist and inventor of the Laffer Curve. He theorizes that lower taxes increase tax receipts through increased economic activity. To his credit, his 1980 theory has been correct. In January 2004, Laffer noted that American stock markets are more undervalued than they have been in forty years, selling for just 25¢ to the dollar.

Fellow bulls like Ed Yardeni, Chief Investment Strategist of Prudential Equity Group, and Larry Kudlow, co-host of CNBC’s “Kudlow&Cramer,” agree with Laffer. They point to American productivity, low interest rates and the Bush tax cuts as the jump-start of a multiyear stock rally that will lead to new highs.

While I’m not quite ready to hitch a ride on the Dow “40,000 or bust” wagon train, I would like to put some of these bearish sentiments in perspective.

From 1926 through 2003, using ten-year rolling periods, research done by the H.S. Dent Foundation™ shows large cap stocks have averaged annual returns of 11.1% with a standard deviation of +/- 5.73%. If the Dow trades sideways from now through the end of the decade, as Mr. Buffett and friends suggest, this implies an average annual return of -2.17% for the decade.

To put that into perspective, that is a poorer ten-year return than the years from 1929 continuing through the Great Depression. During those ten years, the U.S. economy suffered with violent contractions in the money supply, 25% unemployment, a drop of almost 50% in worker productivity, restrictive trade policies and an increase in income taxes.

Today, we have plenty of liquidity in the money supply, rising worker productivity, unemployment near the norms of 5–6%, lower taxes and relatively free trade.
For the bearish scenario to play out, our economy would have to be seriously disrupted for the next six years! Keep in mind that even after 9/11, consumers continued to spend and our GDP remained positive quarter over quarter.

Read More: Forecasting the Stock Market (Part 2)