As you know, stocks did just great in 2003. But what can we expect in 2004?

The predictions run the gamut from lousy to terrific.

So let me boil them down by quoting a line a former colleague of mine used whenever an editor asked about a fact missing from a story: “This, we do not know.”

On the upside, there’s plenty of reason to think the economy will continue to strengthen. That should cause corporate profits to rise. Rising profits are good for stocks – generally speaking.

The problem is that so many investors expect profits to rise that they may already have bid stock prices up in anticipation. So if profits go up less than expected, disappointed investors may drive share prices down.

Fresh numbers from market-data company Standard & Poor’s shed light on this.

On Dec. 31, the stocks in the S&P 500 index were trading at an average of about 24.6 times those companies’ profits for the previous 12 months (using earnings estimates for the quarter ended Dec. 31).

In other words, investors paid $24.60 for every $1 in profit earned.

This price-to-earnings ratio has gradually gone up over the years, and most experts now think the “normal” level should be in the low 20s. If so, stocks are currently priced about right.

Share prices can continue to rise if at least one of two things happens: profits rise or enthusiastic investors push the P/E ratio higher. Eager investors may be willing to pay, say, $35 for every dollar of earnings instead of the $24.60 they’re spending now.

Of course, the higher the ratio – the more investors spend for every dollar of earnings – the greater the risk prices will fall. That’s because earnings growth eventually has to catch up with share price gains, or else the P/E rises indefinitely.

Hot numbers

Who’d have thought a dour, faceless bureaucracy such as the Federal Deposit Insurance Corp. had enough hot numbers for a Greatest Hits album. But that’s what the FDIC has done, and it’s worth getting, especially as it’s free.

The 10th anniversary edition of “FDIC Consumer News,” for fall 2003, compiles some of the agency’s best consumer tips.For a copy of the 16-page booklet, call 877-275-3342, e-mail publicinfofdic.gov, or go online at http://www.fdic.gov/consumers/consumer/news/ (the Fall 2003 issue should be posted soon).

College financial aid

All federal aid programs, as well as many run by colleges themselves, require submission of a Free Application for Federal Student Aid, or FAFSA. Now that Jan. 1 has passed, the application can be submitted.

To fill out the form, the family needs information, including a Social Security number, W-2 wage forms for 2003, and the student and parents’ federal tax returns for 2003.

Obviously, that means it’s critical to get the tax returns done well before April deadline. The forms and statements you’ll need for that should be available by the end of January. In addition, the family will need information on its investments, its other assets and debts. Year-end statements arriving soon from banks, brokerages, fund companies and other institutions should provide all you’ll need.

A student’s high school guidance counselor should have the FAFSA forms. And they are available online at http://www.fafsa.ed.gov/.

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(c) 2004, The Philadelphia Inquirer.

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AP-NY-01-12-04 0622EST