Mid-Year Outlook; U.S. Stocks To Remain on High Plateau, Say Stein Roe Strategists
Business Wire - June 18, 1998 14:21
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CHICAGO--(BUSINESS WIRE)--June 18, 1998--The positive economic fundamentals that have fueled one of the longest running bull markets in history should continue to extend what is considered one of the most prosperous periods for U.S. investors, said Stein Roe investment strategists.
"The current low interest rate, low inflation environment has been the catalyst behind the power and duration of the present bull market. We see this environment continuing into 1999, although with modest growth forecasted and Asia's influence on some U.S. corporations that depend on trade in that region the profit margins of some companies may be reduced," said Harvey Hirschhorn, chief economist and investment strategist for Stein Roe & Farnham.
In fact, Asia's woes have turned into a benefit for the U.S. economy resulting from lower inflation and interest rates. "The threat of rising imports and lagging exports is expected to slow growth the rest of the year," said Al Kugel, Stein Roe's senior investment strategist. "While that may impact the corporate earnings of some companies directly exposed to Asia, it is expected to offset any inflationary pressures which will help maintain the current 'goldilocks' environment."
Kugel expects operating earnings for the S&P 500 to rise moderately in the second quarter, perhaps similarly to the 3.7 percent gain in the first quarter. For the year as a whole, he looks for earnings to increase by 5 or 6 percent, their lowest gains in more than five years.
Kugel added that the problems in Asia and some other deteriorating world markets affect primarily those industries with direct exposure to those regions. "Asia should not be viewed as a macro event. The fundamentals present in our economy are exceedingly strong and will buffer the isolated exposures some companies have to Asia and other weak world markets."
Both Hirschhorn and Kugel believe that rising imports will slow growth somewhat in the next couple of quarters and increase pressures on profit margins, which may stave off inflation. This scenario, they agree, likely will keep the Fed from raising interest rates for the balance of the year. Hirschhorn is forecasting growth in the economy to slow to an annual rate of about 2.5 percent.
Founded in 1932, Stein Roe & Farnham is a Chicago-based investment management firm. It provides professional investment management for individuals and institutions and serves as investment advisor to the Stein Roe family of no-load mutual funds. A subsidiary of Liberty Financial Companies (NYSE:L), Stein Roe serves a national client base through its Chicago headquarters and offices in Cleveland, New York City, San Francisco and San Juan, Puerto Rico.
CONTACT: Stein Roe Mutual Funds, Chicago
Marilyn Morrison, 312/368-8025
Wendy Rauch, 312/368-5657
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