New lows dropped sharply today as small caps and value stocks did well. Also oil service stocks starting to resemble the NASDAQ -- going up 2-3% daily -- day after day. OSX has rallied about 20% over the past few weeks.
Great while it lasts, but here is anther well known economist who expects aggressive Fed tightening next year.
Stocks won't soar in 2000
Fed will dash investors' hopes for another record year
By Dr. Irwin Kellner, CBS MarketWatch
Last Update: 2:23 PM ET Dec 28, 1999
Kellner's forecast
Commentary section
NEW YORK (CBS.MW) -- For 2000 to be another good year, two records must be broken.
First, the economy, itself, has to beat the previous mark for
continuous growth of 106 months, and expand well into its 10th
straight year. See business cycle history.
Second, and not far behind, the stock market, as measured by the
major indexes, must also rise for an unprecedented 10th year in a
row. See a history of Dow Jones Industrials.
Coming off a year when numerous economic and financial records were shattered, what?s the
big deal about this, you might ask?
Alan Greenspan, that?s what. The Federal Reserve chairman and his band of merry central
bankers have given notice that they think the economy is growing too fast for its own good.
Labor markets are the tightest they?ve been in 30 years, sending wages higher. And while
most prices are holding steady, the Fed evidently feels that it?s only a matter of time before
1999?s jump in oil prices spreads to others in response to consumers? continuing clamor for
goods and services.
Greenspan and his gang have cut the economy lots of slack so far, letting it grow more than 4
percent per year for the past three years?far more than was thought compatible with price
stability.
So far, so good on the price front, but in giving the economy free
rein, the Fed has allowed a bubble to form in the stock market,
which, in turn, has become a major factor driving the economy.
With about half of all households in the market nowadays, a
growing number have come to view stocks as a substitute for
savings, sending the personal savings rate to record lows. You
can imagine what would happen were the market to take a header
in 2000.
Because inflation is still at bay and a presidential election year is
on tap, the Fed doesn?t want to bring on a recession. Yet, it does
want the stock market to tone down its exuberance in order to
knock some of the wind out of consumer confidence.
Thus you should expect a progressive tightening of the monetary
screws in the weeks ahead until the stock market cries "uncle,"
and prices cool off. Be prepared for multiple rate hikes?and
maybe even that rarely used tool, an increase in margin
requirements, until equities bend to the Fed?s will.
In this environment, it is difficult for me to forecast another year
of rising stock prices. At best, equities ($SPX: news, msgs) will
end up 2000 where they start--swooning early in the year and
recovering later; at worst, the major indexes could follow the broad market?s performance in
1999 and fall by 10 percent or more.
A drop in stock prices would make it tough for the economy to log in another year of rapid
growth, considering the jump in interest rates and their impact on home building, as well as a
slowing in business spending on technology, now that Y2K is behind us.
On the bright side, however, is Washington?s budget. Its surplus is not only adding to the
supply of savings in the economy?it gives policymakers the leeway to stimulate the
economy, should the slowdown turn into an outright recession. |
