For the "New Paradigmers" among us we have this from S&P. Jeff
personalwealth.com
<<
Monday November 08, 1999 (08:00 am ET)
New Paradigm Prevails
Demand for stocks should remain strong
By Arnie Kaufman, Editor, The Outlook
NEW YORK, Nov. 08 (Standard & Poor's) - Based on traditional yardsticks, risks are high. The averages are at historically liberal levels relative to earnings, book value and dividends-even though background conditions are hardly perfect.
Despite scant evidence of wage inflation, the Fed has to be worried about the shrinking pool of unemployed people available to fill jobs. S&P economist David Blitzer still expects a rate hike at the November 16 FOMC meeting. Long-term T-bond yields, though off their recent two-year peak, are up more than 1 1/4 percentage points in little over a year. Y2K computer problems may still arise. And corporate profit gains seem likely to moderate in 2000.
Active investors today are being asked to accept one of two propositions. The first: A momentum game is in progress and participants will have to be nimble to avoid large losses once the music stops. The second, which is gaining more and more adherents, is that the bar to non-inflationary economic growth has been raised, which, along with the new budget surplus, improves the chances of flat to lower interest rates while corporate earnings rise strongly.
Technology-driven operational efficiencies will continue to make businesses more profitable and this will provide incentive for the growing ranks of capitalists around the world to re-invest, according to S&P research director Ken Shea. Favorable demographics, he believes, will buoy the market as it keeps money chasing stocks.
Shea also sees a continuation of the consolidation trend, as size is needed to prosper in an environment of growing global competition. Reforms within the financial services industry and efforts to beat the accounting change that will penalize pooling of interests beyond 2000 should further spur merger and acquisition activity.
The market's internal condition has improved, according to S&P technical analyst Mark Arbeter. Although still worried that bond yields are in an intermediate-term uptrend, Arbeter sees seasonal influences turning positive and feels the odds favor further stock gains.
We recommend staying with a bullish asset allocation for general accounts of 65% equities, 30% bonds and 5% cash reserves.
The Outlook is Standard & Poor's weekly investment advisory newsletter. Subscribe now to a 24-issue, 6 month trial of The Outlook for only $57 (annual subscription price: $298) by calling 1-800-289-8000, Ext. 39. |
