This is hot off the presses, and begs the question, why on earth would you ask EG to speak at a luncheon, unless you had a grudge against the participants...
Garzarelli to stay bullish even if Fed hikes rates
PALM BEACH, Fla., Feb 4 (Reuter) - Investment strategist Elaine Garzarelli said she would still be bullish on U.S. stocks even if the Federal Reserve hiked interest rates a quarter-point at its two-day policy meeting on Tuesday and Wednesday.
"It wouldn't bother me if they raised rates by a quarter percent," Garzarelli said at a luncheon speech at the Managed Futures Association's annual conference here, adding that she did not expect a rate hike.
"If they raised rates now it would be similar to what they did in 1988 and 1994 -- as a precaution or insurance policy against inflation," she said. "(But) I don't think they are going to raise rates."
Garzarelli said a rate hike could produce a four- to seven- percent downside correction in the U.S. stock market, but she still would expect the 10 to 15 percent increase in U.S. stocks in 1997 that she predicted January 23.
In fact, Garzarelli said the Fed could ease rates at the end of the year as there are already signs that the U.S. economy is slowing from its robust 1996 pace. She said high consumer debt and bankruptcy rates would slow durable goods purchases and restrain growth in 1997.
"We may get to the point where the Fed eases rates," she said.
While Garzarelli is bullish on stocks, she said earnings of companies in the Standard & Poor's 500 index would be flat in 1997, and that service industries show the most potential to rise more than 10 to 15 percent in the next six to 12 months.
"With flat earnings (elsewhere), the service industries for the most part will provide earnings growth better than the overall averages," she said.
In particular, she is looking for restaurant stocks, particularly McDonald's Corp , to outperform S&P 500s by 30 to 40 percent.
She said Nike Inc and Merck & Co Inc also have the potential to outperform S&Ps by 30 to 40 percent, and that some health, banking, telephone and oil and natural gas companiess were also attractive stocks.
Garzarelli turned bullish on January 23, about six months after calling for a 10 to 20 percent downward correction.
The U.S. stock market had rallied about 30 percent since July 1996 when she had turned bearish. When she made her bullish forecast on January 23, the stock market sold off.
Garzarelli was made famous by her prediction of the October 1987 stock market meltdown.
"For the last 25 years I've been called, on the days I've made my major calls, a reverse indicator," she said. "I don't know why that is, but every time I get a major signal the market goes the opposite way. I predicted a bear market on September 9, 1987 and the market did nothing but rally until October."
She said the same thing happened on September 23, 1990 when her system produced a buy signal.
"For two weeks the market dropped," she said. |
